Former market darling Lynas is staring into the abyss, with its auditor warning of “material uncertainty” over the rare-earths miner as it continues to struggle with its $US428 million ($557m) in debts.
Weak rare-earths prices have continued to hurt the Sydney-based company, keeping it in the red despite improvements in output and operating costs.
While Lynas’s accounts in recent years have highlighted risks around its going concern status, yesterday’s report was the first time its auditor Ernst & Young had warned about material uncertainty.
The auditor pointed to a note in Lynas’s accounts that said its ability to meet its financial obligations would require either amendments to the terms of its loans or alternative sources of funding, as well as the risks around volatility in rare-earths markets.
“These conditions indicate the existence of a material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern and therefore the company may be unable to realise its assets and discharge its liabilities in the normal course of business,” the auditors wrote.
The warnings came as Lynas handed down a $94m loss for the 2016 financial year, following a $118.5m loss a year earlier.
Lynas was once one of the best performed stocks in the country as investors clambered for exposure to rare earths, with its shares hitting a peak of $2.70 each in 2011 and creating a paper fortune for founder and then-leader Nick Curtis. The stock last traded at just 5.7c, falling another 8 per cent yesterday on the back of the financial statement.
Patersons analyst Rob Brierley said Lynas had reduced its production costs substantially but still needed a turnaround in rare-earths prices.
“Without improvement in rare-earths prices, it is difficult to see the company continue in the absence of a major restructure of debt and equity,” he said.
“We remain at ‘spec buy’, but warn that the liabilities are mounting and prices must start improving soon if Lynas is to achieve sufficient cash flow to reduce liabilities.”
The latest uncertainty around Lynas comes just over a year after the company struck a “long-term” debt restructuring that it said would be the “last step in positioning Lynas to be a sustainable and financially viable business”.
Lynas chief executive Amanda Lacaze was not available for interview, but the company said in its announcement that while its balance sheet remained a challenge its lenders continued to support the business.
Lynas owes $US203m to Japan Australia Rare Earths and another $US225m in convertible bonds. “The company is in negotiations with both lender groups regarding amendments to the terms of its loan facilities,” the company said.
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