the australian seems bullish on funding

CRITERION: Tim Boreham | February 11, 2009
Article from: The Australian
ANOTHER mining project has bitten the dust -- or rare earth in this case -- for want of funding.

But the difference here is that Lynas's $440 million Mt Weld project in Western Australia was well advanced and remains economic at prevailing rare earth prices. Management yesterday suspended the project (and accompanying Malaysian processing plant), after a wee spat with convertible bond holders who would not release $140 million in escrowed funds.

In turn, the banks refused to extend a $181 million debt facility. "It is not an event we expected and it has not been a pleasant week," says executive chairman Nicholas Curtis, who owns a wad of Lynas shares himself.

Curtis insists the project is sound, with contracted customers and major preliminary work completed at both sites. "We are suspending the project; not killing it," he says.

Management is now pondering a range of options including legal action against the troublesome bond holders or seeking funding from end users. Rare earths are used in "green" products such as compact fluorescent light bulbs and hybrid cars.

Mt Weld was intended to produce 10,000 tonnes of material a year in its initial stages. Put in context, total global supply is only 40,000-50,000 tonnes and most of this comes from China. Rare earths are trading at $US10.25 a kilogram, down from a peak of $US14/kg but still well above Lynas's cash costs of $US6/kg.

Lynas shares yesterday plunged 10.5c to 16c, not far above their cash backing of 9c (the company has a $55 million cash kitty).

Lynas's true believers -- of which there are a few -- might as well hold. Our thinking is that despite the funding drought, worthwhile late-stage projects will find a backer.