Friday, 18 July 2014
CAN LYNAS ADVANCED MATERIALS PLANT (LAMP) BE STOPPED?
The Stop Lynas Campaign has entered its fourth year. By September 2nd this year, Lynas’ rare earth plant (LAMP) would have been in operation for two years!
As stated in our first flyer, if our government agency AELB were to enforce the rules strictly, LAMP would not be able to get its TOL renewed and it has to stop operating starting 3rd September!
We do not wish to speculate if AELB would play its role fairly and effectively. If past experiences were any guide, we do not cherish any hope that LAMP would be ordered to stop its operations come 3rd September!
However, what ultimately happened to the Asian Rare Earth (ARE) in Bukit Merah gives us hope that the end for LAMP seems to be near.
Here are the facts:
1. As of 31/12/13, Lynas has 5 times more payables than receivables. (AUD 38.2m vs AUD 7.6 m)
2. Lynas chosed to stockpile its lanthanum instead of selling at a loss. It costed Lynas USD 15/kg to produce but received below USD 6/kg in return on selling! To prop up the Average Selling Price, Lynas announced in January it will not accept new orders for lanthanum at prices below USD 15/kg.
3. In the half year interim report, Lynas revealed that it had produced 994 tons but sold only 627 tons of rare earths oxides (REO). Similarly, inventory for finished goods also climbed from AUD 0.53 to AUD 4.42 million (m).
4. Lynas’ free cash flow is negative after accounting for depreciation and amortization. After subtracting the annualized amount of AUD 24.5m (half year FY2014 is AUD 12.2m), free cash flow is negative AUD 2.8m.
5. With negative free cash flow, Lynas will have no money to meet its financial obligations let alone maintain its plant. Lynas has 2 major creditors. The Sojitz loan facility has a principal repayment schedule as shown in Table 3.
30 September 2014 USD 35 million
31 March 2015 USD 45 million
30 September 2015 USD 45 million
31 March 2016 USD 90 million
Total: USD 215 million
Table 3: Sojitz loan facility repayment schedule
In addition, the principal of Mt. Kellet convertible bonds amounting to USD 225m is payable in full on 25 July 2016.
In short, Lynas will need to fork out a total of USD 440m by 2016. Interestingly, the Mt. Kellet convertible bonds come with conditions that restrict Lynas from issuing new shares until Lynas can achieve at least 70% nameplate capacity of Phase 1 over 6 consecutive months . Therefore, unless Mt. Kellet relents, debt financing or debt restructuring are Lynas' only options.
6. Lynas is significantly leveraged with gearing (borrowings/equity) of 0.87, which means, Lynas has almost as much borrowings as it has its own funds. While it is still possible to borrow, it is unlikely Lynas will get favorable terms in view of its poor profitability and prospect. To make the matter worse, the Sojitz loan facility comes with a condition that 50% of any new debt raised must be used for partial repayment. Therefore, even if Lynas is able to swap new debt with old, it will probably service the new debt with even higher interest than that of the old.
7. In conclusion, Lynas will fail. It is not a matter of if, but a matter of when. Will the existing creditors throw in the towel? Or will they continue to throw good money after bad? The next few quarters will be crucial for Lynas' survival.
8. Lynas' net asset per share is AUD 0.28. At the closing price of AUD 0.135 on 15/7/14, it is still trading at a price to book ratio of 0.48. It has shed more than 95% of its peak value. (By Soo Jin Hou – Stop Lynas Coalition)
How much longer can Lynas hold up before it goes down?
The people of Kuantan and greater Kuantan will have to eventually face the spectre that the toxic wastes left behind by LAMP would be the unwanted legacy that will plague the communities for centuries to come even if Lynas did not get its TOL renewed!
Can you imagine what the future would be like if TOL is RENEWED?
To be continued………………………………
Posted by Save at 22:09