By Ryan Newman - July 17, 2015
Shareholders of Lynas Corporation Limited (ASX: LYC) are rejoicing today after the embattled rare earths miner released its latest quarterly cash-flow report.
Lynas delivered on its promise to continue delivering positive free cash flow, after reporting its first ever positive result during the month of March ($191,000). The miner improved this considerably during the three months ended June 30, achieving free cash flow (measured as revenue, less operating costs and capital expenditure) of $6.4 million.
The Group’s CEO, Amanda Lacaze said: “The Rare Earths market is one that is characterised by speculative activity. Company valuations can show great volatility based on announcements and rumours… While we expect a level of uncertainty in the rare earths market to continue in the near term, we remain focused on becoming the strongest performing company within this market.”
Today’s result is a far cry from what most investors had come to expect in recent years given the company’s long history of delays and cost overruns and the constant risk of inadequate cash reserves. The company ended the year with a cash balance of $51.9 million (up from $44.4 million at the end of March), although $20.6 million of this is restricted.
Although today’s result was obviously encouraging, investors need to understand that the risks involved with a Lynas investment are still in existence. With China controlling the vast majority of the rare earths market, Lynas has no control of the price at which it sells its resources, which makes it an incredibly risky prospect going forward.
Lynas’ shares surged nearly 24% following the announcement with the shares maxing out at 4.7 cents. That’s down from a 52-week high of 22.5 cents, and up from a low of 3 cents. Despite its massive discount compared to this time last year, investors would still be wise to avoid Lynas’ lure and focus on some of the market’s other small-cap superstars.
LNC Price at posting:
99.5¢ Sentiment: None Disclosure: Not Held
