End of Financial Year, page-44

Great well thought out reply. All points worthy of a serious non sarcastic answer. First I find AL very careful to not only follow laws but run the company in an Ethical conservative manner. I am only going to talk about things that are consistent with that style of business. There are many examples of profit manipulation Enron, Banks leading to 2007. I see no gain going there. If AL is using these methods (I firmly believe she is not) it is all over eventually.

Next because Prices are going up, it will be proven that AL did the correct thing in raising cash the way she did. I am buying stock because I think it has a reasonable chance of working out for Lynas. What I object to is people looking at only cash and not realizing how it was raised and what it will take to unwind the actions taken. This will have to happen.

Cash should never be ignored. Especially on profitable companies it is one of the first indications of problems with PROFITABLE companies. Of course Enron just moved all the DEBT out to subsidiaries that were not in their report, fooling many.

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Cash is much more easily manipulated. Lets take a look at what it is. It is the balance in the bank at the end of the Q nothing else. Without digging into balance sheet and P&L you have no idea where it came from. Without looking at liabilities you do not know they are slow paying vendors to keep the needed cash. What do people do when they are running out of money? They pay min on credit cards to make mortgage. Long term people have to be paid. Without Looking at assets you do not know that vendors are paying very quickly Keeping the average balance in the bank much higher. What would happen to your bank balance if you company started paying you 2 months in advance. This is effectively what receivables is telling us is happening now.

Sales outstanding. I believe they are working very hard to fill every PO as it comes in. With most product under contract there is no incentive for company to place a long term PO. Sales outstanding comes when there is no contract and a company places a 6 month PO to receive a better price. No need with contracts.

“What you are saying is only correct if sales do not increase.”
This is a great point one of 4 I have been waiting for people to point out. It far from the easiest to think about. Increased sales will give them more time to unwind this It will also give them a chance to raise more cash this way if needed. But think of the above example where company pays you early. Why would they ever pay you early. Well if it was a small cash rich company and you went to them and offered to work for 5% less maybe they would. (humor me on this example) As your situation improved you may want to undo the deal that is costing you. Since you brought up a very good point I will give you another one that I have been waiting for people to bring up. Many of the big customers are Japanese and members of JARE. JARE wants Lynas to survive. These companies may be paying fast to Keep Lynas out of cash trouble, without major concessions by Lynas. I have no idea why they are being paid so early, its all a guess. I do think as they turn profitable it will need to be unwound. That will take lots of cash. So if your company paid you early because you were a valuable trusted employee to help you through some rough times wouldn’t they want to go back to normal when you were on your feet?

Phase II is the same production as Phase 1. Lower output is because La, Ce, and LaCe blend are selling for so little it is not worth processing all of it. NdPr is now above the combined design rate of 1320 T. I believe it will go higher than this, it is mow ramping slowly. Q2 1331T Q3 1373T


“The fact that you think the company is losing money highlights the importance of cashflow. According to the P&L they company is is running a gross loss. Dare to have a guess at what they gross return would be if depreciation on PPE wasn't expensed through cost of sales? It is too simple to say a company is losing money when looking at a measure that includes non-cash charges. Another example is deferred exploration and evaluation expenditure. This has a negative effect on net profit however it does not mean that the company is losing money as it is a cost that was previously capitalised, again highlighting how the P&L does not always reflect the economic reality of the company.”
I have been waiting and have not believe no one even mentioned this yet, so hats off.
I do not want to guess on depreciation. I will say exactly what it is with details
Yes capital equipment associated with production is in COP. All the rest is G&A. Note 13 of H1 tells us this was AU$ 18.7 M for H1. In note 19 of annual report this was 38M in note 7 of annual report it shows 12 M of this being taken as G&A or 31%. It all hits the bottom line so 9.5M per Q. For record about 6.5M a Q hits COP.

So yes there is an impact. An impact that says the profits with out this are better, but never close to positive, up till H2 2017. I believe it will actually show that there was some legitimate cash generated in this H2. We will know in August.
If you want to take it out of H1 also look at the loan forgiveness which was over 20 M H1. Foreign exchange loss isAU$ 54M. It was a real hit to profits Small hit to cash in the bank. AU$ is up so far this half. Malaysia is down (where plant assets are) so expect another exchange hit.
There are cars, PCs, office equipment and other things in capital, that have short lives. (See annual report notes, not in H1) In a cash starved environment I SUSPECT, that many people have been making do with old stuff. When there is cash available how much will be replaced? Since AL took over (NC was rather free spending) Things have been run conservatively. It is hard to say “no” to great employees that have sacrificed allot when things were bad and are now looking better. I have been through 4 bust and boom cycles at companies. I have no problem with this happening it is needed, It does use cash. Also I am sure some departments are running Short Staffed. It is hard to tell people that have been working extra and maybe ignoring there families that open positions cannot be filled when there is profits.
The Last Mining campaign is only supposed to last till June 2018. An overburden removal is needed before next campaign, I assume this will be capitalized over the life of the deposit. Assuming this is capitalized it will impact cash and not profits. It will becomes an operating expense when the ore is used. I cannot know for sure how they will handle this. Allot depends on AU tax laws of which I have no knowledge. ALL capitalization and depreciation is governed by local tax code not GAP.
“It seems as you have a basic grasp on issues that can be found when comparing profit with cash flow, however you have also shown that you do not fully understand the position that Lynas is currently in For example you say that I said cash and earnings are going in opposite directions, this is not true.
When I said opposite directions I only meant that cash was positive and earnings negative. I never intended to say Earnings were getting worse they are clearly better. H1 a year ago they loss 2C H1 this year 0.37C loss. Clearly a great improvement. Take out loan forgiveness and exchange loss and I think it is less than 0.3C. (guess)
If I thought what you said I would NOT be buying stock. I did say the delta between cash and earnings has been negative for along time and was in H1. However I firmly believe the operating picture has been getting better every Q for two year not worse, with a few, ups and downs. I can see where I have been misleading and over stating problems. A direct reaction to rosy picture statements. I have bought stock in November sold in January and I am buying it now. Though I made a nice profit in Jan and stock went down after that I have admitted if I held in Jan I would have more shares at a lower price now than I do. I have mentioned my recent stock buys many times to show I think things are improving. I just find some of the posts by the RAH RAH crew ridiculous on how fast debt will be paid and what the future will look like. Sorry for over emphasizing the negative. Guilty as charged. What you said about my opinion is not true. Also my written grammar is poor (horrible) . I always demanded help with writing when I took a job. Luckily I was in demand and many companies gave me this. Never worked for a company that didn’t. Now I am retired and it is becoming much worse.


Yes cash flow is very important. Without cash you cannot survive. Cash is often the first indication profitable companies are in trouble. First indication dividends may go away. I have pointed out many reason why it is important. I will not agree it is more important than earnings. I challenge you to find any reference it is. You cannot find it mentioned in any summery for a company, you always find earnings. My continued banging on EPS and down playing CASH is a direct response to those on this page that continue to say all that counts is Cash. The ASX in its summaries only mentions PE and EPS. Same is true for NASDAQ and NYSE. ASX and these others do not mention cash flow in quick summery or detailed summery. IF Cash flow was more important should not someone mention it. I understand why many on this board are focused on cash. For last two years AL has mentioned Cash flow every Q always in a positive light. Her great management in a very difficult situation saved this company from running out of cash. It is just wrong for people to now think cash is more important than earnings. That earnings are profits are easier to manipulate, they are not. Read a few books Cash flow is always last. Do all these summaries not including cash start to give a hint of what is more important?
There are many ways to extend cash many of them have been used by Lynas and are rapidly being used up. REE prices going up will provide near break even profits this half. Possible even some real earnings. I have been saying this since the price run up started in Late March. I expect Earnings to increase exponentially in the next few half’s. This will supply very real cash to total operations. I think we will see little of this go to reducing JARE Debt, In the next 12 months. If debt payments exceed 25M then I was very wrong in what I said. 20 M than I was just about Right. Below 15M Then I was conservative in my predictions. Debt is in US$ so all numbers are US$. Ignoring differed payments JARE Debt is 200M or 33.M a half If they pay 25M in the next year and prices continue to rise at even half the current rate then JARE may be paid by 2020. If not JARE will refinance its debt. MT K is the real question I still do not see them Exercising half their bounds by Sept 2020. If JARE is paid or nearly paid I do see JARE loaning the cash to Lynas to clear the remaining Bonds. That would be very good for the dilution it prevents. There have now been 2 major amendments to the Loans and 2 minor. (minor and Major is just my interpretation. I call last May minor or maybe temporary is a better word.) In all of these JARE has not taken any form of stock for debt. At this point I am sure there is something in JARE’s charter that prevents any ownership.
I like what you said and you have clearly shown that I need to tone down and change a few things. I will reply to any comment you make. I am going to try to start really toning down my stuff till Q report is out more likely annual report. We will have so much more data. Q reports tons shipped, tons sold and revenue, this is very valuable. They do report cash and I always look but without balance sheet and PL I find it useless because all you know is what it is not where it came from or went. Annual report has , Balance sheet and P&E. And much better notes on the data than H1 reports.
For example if AL wants to protect the restricted Cash there will be a neutral cash flow this Q to keep the cash under 25M. Does this mean things were suddenly worse than Q3? absolutely not. Without Balance and maybe P&L we do not know what changed. Of course AL main explain it in detail then we will know.

I have enjoyed this. The forth ITEM that goes against what I say is this. There is now over 3Kt of finished goods in inventory. All the expense has been recognized on this. So if they start selling inventory instead of adding to it (895T added Q3) the sales proceeds becomes Cash immediately, since it is an asset no improvement in Earnings. No one has mentioned this yet, it is something that reduced cash and caused earnings to be higher.

In trying to provide balance I went out of balance and for that I am sorry and apologies.
PS just a Prediction or Guess. As soon as they are close to profitable AL talks allot more about Profits much less about cash. She will probably never mention PE or EPS Just $ of Earnings. I have no problem with this it is good public relations.