50% chance of bankruptcy

Lynas survival a 50-50 proposition: Jack Lifton
Posted on January 8, 2015 by Raj Shah
January 8, 2015 (Source: Business Spectator) – A leading rare earth metals expert has rated the survival of Australian producer Lynas as a “50/50” proposition, warning that although the company was now well managed, low prices for its output mean it was vulnerable to being taken over by a Japanese or Korean company.
Rare metals specialist Jack Lifton shrugged off recent moves from China to scrap rare earth export quotas, saying it was just designed to please the World Trade Organisation and would not really affect how much was exported from China.
The Technology Metals Research founder said prices remained stubbornly low for many rare earth elements and there was no guarantee Lynas — a former market darling — would survive the current slump.
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“50/50, I would say,’’ he said in response to questions from The Australian about the company’s survival prospects.
“(Although) I think Lynas today is very well managed. I don’t say that Lynas is making money but they are doing better than (US rival) Molycorp.
“There are a lot of people talking about making a run for Lynas and Molycorp. Koreans and Japanese would be at the forefront.”
Lynas has been under heavy selling pressure amid a broad slump in the listed rare earth sector that scaled dizzying heights in 2011 as exports out of China dried up amid new export restrictions, only to crash back to earth when shipments resumed.
Yesterday’s reports suggested export caps have been lifted in China but Mr Lifton said actual exports had never exceeded quotas anyway, while reports from Beijing said there would be a new system of permits for export.
Lynas’s stock, which traded at more than $2.50 in 2011, initially dropped 8 per cent on the reports out of China to 6.2c but managed to hold that level yesterday.
Lynas chief executive Amanda Lacaze told The Australian she agreed with Mr Lifton that the Chinese move would not affect prices and “the language out of China has been about creating a market that is more orderly and has more value”.
“I am (also) glad Jack thinks we are well managed because I think we are focused on getting the right things right, but we are still a late-stage start-up,’’ she said.
“I am not going to say it’s all smooth sailing because it’s not. Prices have come off by 20 per cent last quarter.”
Ms Lacaze said Lynas had established long-term relationships with leading Japanese customers and had reined in costs and was tailoring production to the needs of high-value customers.
She said the pressure on prices would likely ease now that there was greater clarity about the changes in China, and Lynas was benefiting from its environmental credentials among end-users who sold clean-tech products to environmentally sensitive consumers.
“We have customers increasingly at an end-user level who are concerned about the provenance of the product,’’ she said.
Chinese production of rare earths — obscure metals predominantly used in hi-tech manufacturing — had been synonymous with environmental degradation, with small operators destroying tracts of soil with chemicals to leach the elements out of it, something China says it is working to stop.
Japanese media reports said Lynas’s chief commercial officer, Jean-Claude Steinmetz, had been in the country late last year trying to shift customers to longer term contracts, something Mr Lifton said was likely about boosting the company’s borrowing capacity.
Lynas recently refinanced more than $200 million of debt funding with Japanese lenders and also generated $83m before costs from a capital-raising process.
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