Open Letter to Lynas Corporation Ltd Shareholders.
Cc: Nicholas Curtis, Chairman – Lynas Corporation Limited Eric Noyrez, Chief Executive Officer – Lynas Corporation Limited
As shareholders in Lynas Corporation Ltd (Lynas), along with some 40,000 others, we are sure you would agree that it is an understatement that we are disappointed with Lynas share price performance over the last few years. Many shareholders have suffered as a result of the significant deterioration in Lynas’ share price. The Rare Earth Industry is complex and difficult to fully understand and therefore as with many other public companies, it is simply down to trust: trust that management will act in the best interests of ALL shareholders.
We have been advised that Lynas expects to be operating cash flow neutral at sales of around 750t per month. Production that would support this level of sales (at a minimum) is reportedly due to be achieved during the April-June quarter. Based on this information, the major cash flow issues facing Lynas appear to be the Sojitz debt repayments due in September 2014 and March 2015. At this point, the financial cost of the various delays has meant that Lynas will probably require some combination of debt/equity/refinancing.
Funds are likely required for operating cash flow and a principal loan repayment of $35m due in September and possibly $45m due in March 2015. Thus while Lynas is in the position of potentially needing additional funds, it is ignoring or else simply opting for poor communication with a very obvious source of funding – its shareholders. Over two or so years, the opportunistic speculation in Lynas shares and short selling has been rife. And so, true to form, as Lynas ramps up its production of Rare Earths and enters the next phase of its existence, speculation is rampant – again.
Enter Mt Kellett whose stated company strategy is:
Mount Kellett Capital Management LP ("Mount Kellett") is a multi-strategy investment firm focused on global distressed, special situations and opportunistic investing.
With recent media coverage hinting at the possibility of Mt Kellett circling Lynas again in anticipation of effectively renegotiating their Convertible Bond via conversion to equity (in whole or in part), whilst Lynas financial situation appears vulnerable, what could possibly be in store for the “long-suffering” Lynas shareholder? One thing is certain, if the recent media coverage is accurate, Mt Kellett will not be seeking to convert their Bond into Lynas equity at $1.16 per share. At first glance it is very easy to dismiss Mt Kellett as opportunistic dreamers who are stuck with Lynas and vice versa until July 2016. However, an offer to convert to equity on the part of Mt Kellett (if true) would obviously come with the proverbial carrot. Additional funding? An offer to refinance other upcoming debt obligations? Or a combination thereof? Mt Kellett, with its focus on “global distressed” and “opportunistic” investing, does not fill us with the confidence and optimism it once did back in 2012.
It’s entirely possible that our Board of Directors may feel, in the absence of successful straight-out debt (re)negotiation with Sojitz/JOGMEC and Mt Kellett (or some other entirely new lender/s), that an outright and sizeable equity/rights issue offering to existing shareholders is unpalatable or impossible, given the monumental lack of substantial shareholder involvement in past raisings. We say that they may feel this way. They may, but we simply do not know. On this basis, the Board may feel disinclined to put to us a possible raising and instead may entertain an offer (any offer?) from Mt Kellett or some other Hedge Fund.
Your Board of Directors is obliged to look at any genuine offer put to them and make recommendations accordingly. As shareholders, we would strongly urge that you communicate to the Board (or to us [email protected]) that a dilutive offering from any of Lynas’ current lenders would be unacceptable. Any such recommendation being put forward should be opposed. Instead, equity offered to existing shareholders to achieve the same end is, we believe, a more eloquent solution.
Yours Sincerely,
Mr. Joseph Karam - BBus(UTS), JP Mr. Tim Ainsworth Mrs. Lynne Ainsworth Mr. Clement Chan - BEng(Curtin) Mr. Chris Hughes – CA, MInstD Mr. T N Chan - B.Sc (Hons ) Minerals Engineering Dr. John McKenzie - PhD, MApp Sc, BSC(Hon) Ms. C. C. Lee Mr. David Murphy Mr. Robert V. Richardson - AO Mr. Keng Lee - BCom(Deakin)
LYC Price at posting:
16.5¢ Sentiment: Hold Disclosure: Held
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