- CYNTHIA KOONS
- From:The Wall Street Journal
- September 27, 2012 11:25AM
RARE-earths producer Lynas took a giant leap forward earlier this month and now it has taken another step back.
The Australian company’s shares jumped more than 50 per cent on September 6 when Malaysian authorities, after a five-year wait, approved a temporary operating license for Lynas’s processing plant there. The plant promises to turn Lynas into one of the world’s biggest suppliers of rare earths — materials crucial to products from wind turbines to hybrid cars to iPods.
Approval of the license seemed to spell defeat for environmental activists and other political opponents of the plant. But it turns out Lynas’s investors were celebrating too early.
On Tuesday, the company said it had renegotiated debt covenants with a Japanese lender because of delays at its plant. The latest hiccup: Lynas’s activity has been suspended for a trip to court, after protesters applied for an injunction to block the temporary license. A hearing is scheduled for October 4.
If the plant isn’t operational within three months, CLSA says, Lynas may have to seek additional equity next year.
According to Lynas, the planned late-October start date for production is still good. But that can’t be certain until the Malaysian court gives its verdict. Investors aren’t convinced Lynas remains on track — the company’s shares fell 5 per cent yesterday.
Either way the court decides, news of more delays is a reminder of the risks of emerging markets.
With an election in Malaysia looming early next year, political risk there will only intensify. Foreign companies in a sensitive industry can’t be complacent.
Lynas has made positive steps recently — but it is still several steps away from declaring victory.