Lynas: Is the Tide Turning?

Critical Metals

The share price of Australian rare earths producer Lynas was up last week on two pieces of positive news for the company. Lynas saw $191,000 of positive free cash flow in March and said it cut costs significantly during the March quarter.

Last week, Lynas (ASX:LYC) saw its share price rise a little over 6 percent on two pieces of positive news for the company.

First, Lynas saw $191,000 of positive free cash flow in March. According to The Sydney Morning Herald, that’s the first time the Australian rare earths producer has seen positive free cash flow since it began mining rare earths in 2011, and the event marks a significant milestone for the company.

“Based on recent performance, the business currently expects to continue to deliver positive free cash flow,” the company said in its third-quarter results release.

In other Lynas news, the company said it cut costs significantly during the March quarter. According to Mining Weekly, cost reduction initiatives brought 38-percent savings in overheads, 33-percent savings in repair and maintenance costs and 21-percent savings in salaries and wages. That adds up to over AU$35 million in annualized savings, much higher than the $26 million originally forecast.

Beyond that, there’s the recent announcement that China is planning to scrap its export taxes on rare earths come May 1. While that might not seem like good news for rare earths companies outside of China, Lynas CEO Amanda Lacaze said in an interview with Bloomberg last week that the announcement could have a positive effect. She suggested that end users have been using stockpiles instead of placing new orders for rare earths while “awaiting clarity” on China’s policies. Now that everything has been cleared up, she sees potential for more demand to come back to the market.

“In the short term, a lot of what has been damping demand will be released,” Lacaze told Bloomberg. “Some customers have been living off inventories and they’ll come back and start placing orders.”

Not all good news for Lynas?

That all certainly sounds like good news for Lynas, but Mining Weekly also notes that the company reported slightly reduced rare earths production for the March quarter, which resulted in lower revenues and negative cash flow at the start of the quarter. Restructuring charges and yearly charges related to business insurance added weight to that situation.

Furthermore, while last Friday’s gains provided a bit of a bright spot, Lynas has seen its share price fall 36 percent since the start of 2015, and the company has lost 75 percent over the past year.

For the Motley Fool the latest Lynas news isn’t enough to warrant a true change in the trade winds for the company. Writer Owen Raskiewicz notes in an article that the company still has about $US205 million in debt, and states that if he held Lynas shares, he would use the brief price rise to “exit the position as soon as possible.”

In any case, Lynas is still one of only two rare earths producers outside of China along with Molycorp (NYSE:MCP) in the US, and as such, it’s a rare earths stock that many investors will continue to watch.

At close of day on Monday in Australia, Lynas’ share price was down 3 percent, at $0.046.


Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.

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