Lynas hit by collapse in rare-earth ore prices
Controversial rare earth miners Lynas is facing a more formidable opponent than Malaysia's Kumpulan Hijau: It is struggling to put its finances on solid ground amid a collapse of mineral prices.
The Australian mining firm, which set up a refinery plant in Gebeng, Pahang, despite opposition from environmentalists, is facing a credit crunch, the Wall Street Journal reported.
The financial paper said Lynas was cutting jobs and moving its headquarters from Sydney to Kuala Lumpur while renegotiating its debt as hefty repayments loom.
Lynas mines its rare-earth minerals in Laverton, Western Australia, but the minerals are processed in Gebeng.
The RM2.5 billion plant near Kuantan has been mired in controversy over concerns that the processing of rare-earth ores from Australia would have a disastrous impact on the health of some 700,000 people within a less than 30km radius of the facility.
Meanwhile, rare-earth mineral prices have collapsed almost 90% compared with three years ago. Rare-earth minerals are used in products such as the iPad, computer hard drives, camera lenses, hybrid car components and televisions.
In Lynas’s case, an Australian resources analyst at www.moneymorning.com.au said its average rare-earths “basket sales price” fell from above US$200 (RM636.45) per kg in 2012 to US$22.63 (RM72.01) per kg today.
Three years ago, Lynas was valued at about A$2 billion (RM5.95 billion) and on Monday, its share closed at 21 cents (63 sen) on the back of capital-raising efforts.
The resources analyst said “Lynas has a significant amount of debt which requires near-term payment or restructuring”.
The company also faces production delays and capital raisings as well as a series of environmental protests at its Gebeng plant, all of which has affected its balance sheet.
Its shares peaked in April 2011 after management agreed to a US$225 million loan from a few Japanese investors, said WSJ, but when rare-earth ore prices began falling sharply, the Japanese refused to extend its loan timetable.
Lynas is currently raising A$40 million dollars to repay debt with another US$440 million due for repayment by mid-2016.
The resources analyst added that “as Lynas was producing at roughly its breakeven price, it could not afford additional capital expenditure, administration fees or even debt repayments. It must continue to raise equity to pay for these necessary expenses”.
More ominously, he said, the more rare-earth minerals Lynas processed at current prices, the more unprofitable it would be for it. – July 31, 2014.
