Plant Delays Nudge Lynas Closer to Raising Equity, By Rhiannon Hoyle
For Lynas, the hurdles just keep coming.
Not only has work under its recently granted operating license been suspended for at least a month by a Malaysian court, but the company now also faces more obstacles in terms of cash flow, market analysts say.
While it’s likely Lynas can get through the immediate period with an expanded working capital facility, the Sydney-based company could well need alternative funding if the start-up of its newly built Malaysian refinery is further delayed. There have even been suggestions of an equity raising.
To be sure, Lynas clearly ruled out an equity raising only last month and a spokesman for the company declined to comment further Thursday. However, cash flow is tight and exactly when the company may secure funds from its first rare earth sales is now uncertain.
“Any further delays may necessitate an equity raising,” UBS analyst Ben Wilson said in an interview, noting Lynas may well face additional appeals by activists opposed to its processing plant.
Shareholders in the Australian rare earths company had breathed a sigh of relief when Malaysian authorities finally awarded a temporary license, known as a TOL, in early September. And despite repeated legal delays since, Lynas had publicly stuck by its timetable to begin processing its first rare earths at the plant in October.
It’s a deadline, though, Lynas has been forced to give up after the Kuantan High Court delayed a decision on long-running legal action by activist group Save Malaysia Stop Lynas until Nov. 8.
“This delays commissioning at least by up to one month, from mid-to-late October to mid-November,” said Mr. Wilson. “There are two higher courts in Malaysia–the Court of Appeal and ultimately the Federal Court–hence, we note the potential for further appeals by either party.”
Investors are obviously nervous, with shares diving as low as 68.75 Australian cents (70.30 U.S. cents) a share, down more than 20% on their last close.
The court’s decision prompted Deutsche Bank DBK.XE +0.90%, which also suggested Lynas may need to raise equity, to slash its recommendation on the stock. It now has Sell rating on the shares, with a target of A$0.65, down 21% on its previous target.
“We believe Lynas will need additional funds to get it through to first cash flows given a likely three month minimum commissioning period,” Deutsche analyst Chris Terry said in a note to clients. “We forecast that Lynas requires A$120 million and, given a debt cap of a further A$80 million, we assume the remaining A$40 million is sourced through equity.”
Not all have been so quick to downgrade their expectations J.P. Morgan JPM +0.94% analyst Mark Busuttil says that, while any substantial delays could have the company seeking alternative financing, “at this stage the delay seems only modest.”
As such, he said he would take a cautious stance for now, and kept the company on a Neutral rating with a target of A$1.50.
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Despite the PM being popular (but not his party), this will run and run as the opposition have politicised this issue for their own ends. Some want an end to the corruption here in Malaysia, they believe society will be fairer with a change of government, it won't get any fairer IMO. Most emerging countries are not ready for full democracy until a certain level of income has been obtained first IMO(then they care less about what the politians/government are doing).Protests from the ill-informed will continue and Lynas will produce eventually and the lower sp will offer up entry opportunities for new investors.
A bit distasteful seeing some of the anti- Malaysian comments (especially with the strong historic and current ties between the two countries), but that's your view, FDI will continue in Malaysia with or without your investment.Rich and SuperRich Singaporeans, Hong Kongers and Aussies (to mention a few)continue to buy property here and the people are friendly on the whole.A great place to live or visit, just unfortunate timing for Lynas in the run up to the next General Election.
LYC Price at posting:
74.0¢ Sentiment: None Disclosure: Not Held
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