announcement we are waiting for -plant fixed, page-26

DoctorWho2, if true, I find that an extraordinary admission by a Lynas executive that the plant would be fixed by the end of the year. Although I’ve suspected that, it’s not what the company was advising investors at the quarterly.

The June quarter was when the start up issues were meant to be finally behind the company and I and many other were shocked at such little production and that supposedly minor problems would take as long as October to fix whilst they waited on parts. If it’s actually “by the end of the year”, then that’s 3 quarters or 9 months without commercial production (forget token production, I mean sustained, at volume). That’s a major problem and a disaster for shareholders.

It means loss of revenue from 9 months production that investors don’t get back, loss on interest cost from the funding not paid down, direct cost of the fix, for which no-one knows, and loss of reputation with customers as a reliable supplier and its first mover advantage, that was such a big driver of it’s business case a year or two ago.

More importantly, the impact on the cash position of the company would be very serious.

If production starts up at Xmas, decent volume wouldn’t be shipped until say January. Presumably sales are paid on 30day terms. But you also have to add customer acceptance periods for any new customers or for products from the suite that were not previously delivered to current customers.

So, a fix “by the end of the year” means significant cashflow delayed after March or later in the June 2014 quarter.

It’s difficult to properly project cashflow for this business, but on known information I can’t see how their $125m in funds will last that long. Raising debt funding from banks will be very difficult prior to proven production and profits and with $450m in senior ranking debt already.

The capital raising route is also problematic without profits and the low share price, at least without heavily diluting current equity holders.

If what you suggest is correct, it’s hard to see a way out for Lynas financially. Assuming they survive in some form because of the Mt Weld assets, it’s not clear that current equity holders will survive.

A zero share price has to be realistically considered in my view. I can’t see where the investment case is. Certainly there’s no longer any blue sky and the sharemarket is running hot elsewhere whilst Lynas long-termers are trapped. Why would any private investor be here?

This post is getting a bit long to comment on your other revelations DoctorWho2, but how you get 20+ thumbs up for your post is beyond me – must be a lot of shorter’s on this forum now.