Rare earths miner Lynas Corporation Limited (ASX: LYC) has seen its share price sink 22.6% in mid-morning trade to 8.9 cents, after announcing a capital restructure.
Here’s what investors need to know:
As we suggested last week, Lynas was likely to call on shareholders to tip in more capital, as it tried to renegotiate one of its major debt facilities. Today the company unveiled an $83 million capital raising, with $12 million coming from an institutional placement and an additional $71 million from a 5-for-14 renounceable rights issue for existing shareholders.
An additional $66.6 million could also be generated through the issue of 740.3 million options, if they are all exercised.
The funds will be used to pay a US$10 million instalment under its senior debt facility, $6 million on restructuring costs, $24 million on improving its production process, $36.6 million as applications development, and working capital, with the remainder $5.4 million in transaction costs of the capital raising.
Lynas says that post the capital restructuring, its cash balance will be $82 million, 90% of debt (US$440 million) will be due after 12 months with 75% of that not due before June/July 2016. That should allow the rare earths producer to concentrate on getting its production volumes up and subsequently slashing production costs.
At the same time, Lynas says its expects demand for its rare earth oxides to grow, with the world’s largest producer and consumer of rare earths, China, aiming for sustainable production, and cracking down on illegal rare earths mining.
That could see rare earths prices rise, but interestingly, the company makes no mention of the potential for rising rare earths prices in its presentation. There’s also no mention on when Lynas is likely to see its operations become cash flow positive.
Investors should also take note of the lack of the detail on Lynas’ current and forecast all-in production costs, compared to rare earths’ prices. Given that’s integral to making an assessment of an investment in the company, it’s a black mark in my books for new management.
As such, an investment in Lynas is highly speculative in nature, even at such low prices, and one I won’t be touching.