Lynas Corporation: The End Of The Road?

Lynas Corporation: The End of the Road?

Lynas Corporation (ASX:LYC), a company focused on creating a fully-integrated source of rare earths from mine to market, was once again left reeling at the news that its temporary operating license (TOL) has been suspended.

In what has been one of the most dramatic court processes in recent memory, the Australian firm last week confirmed that a Malaysian court has chosen to once again delay a decision on a petition from environmental activists and local residents that calls for the revocation of its TOL.

While it might take time for the full implications of this decision to be seen, some analysts fear that this delay could be the straw that breaks the camel's back in relation to testing investor patience.

Problems are mounting for the company, which seemingly holds much investor potential. Besides the significant hurdle of the latest suspension, Lynas is now also facing an increasing amount of financial uncertainty in terms of cash flow, according to market analysts.

While the company got a green light from the Malaysian government to build near Kuantan in 2007, and was offered a 12-year tax holiday as a “pioneer investor,” both the government and Lynas clearly underestimated opposition to the plan.

An investor conundrum

What makes this case fascinating is that less than a month ago, the company was riding the cusp of a positive market wave whereby its share price surged 41 percent the day after it was confirmed that its controversial Malaysian plant had won a TOL from the country's Atomic Energy Licensing Board (AELB).

According to a report by The Wall Street Journal, while it is likely that Lynas will be able to get through the immediate short term with an expanded working capital facility, it could very well require alternative funding if the startup of the plant is further delayed. There have even been suggestions of an equity raising.