If your are a speculative mining company with an uncertain track record like Lynas Corp (LYC) and you announce a surprise fund raising and more than $36 million in losses, it would be reasonable to expect the shares to drop rather sharply – which they did yesterday.
The shares closed down more than 25% at 8.6c after Lynas revealed news of another deeply discounted share issue, this time to raise up to $83 million via a placement and rights issue.
The shares are to be issued at 8c a share, a 30% discount to its last traded price of 11.5c, so naturally the shares plunged to just above that level after trading resumed following the suspension asked for by the company late last week.
Lynas, which has a mine in Western Australia and a processing plant in Malaysia, said it wants to raise $12 million via a placement of shares with institutional investors and the balance of $71 million via a rights issue at 5 shares for every 14 held.
The issue will be underwritten by Patersons Securities, meaning the firm could be stuck with a swag of scrip if shareholders do not support the highly dilutive issue.
Those who participarte in the issue will also receive options which are exercisable at 9c before September 2015.
LYC 1Y – Lynas sinks on new fund raising
Lynas also said it has renegotiated the repayment schedule on a loan from Japanese lenders, with the September 30 repayment delayed by a fortnight which will allow Lynas to use funds raised from the placement to meet that payment.
That is a tight deadline, and auditors and the company pointed out that there is a lot riding on that payment being made (see below).
Details of the capital raising came as Lynas reported its full year losses had tripled to $365.8 million.
Lynas said the extra funding will strengthen its balance sheet and provide it with enough liquidity as it transforms from a start-up phase to full business operations.
“This recapitalisation of Lynas is supported by substantial financial investors, some of whom specialise in investments in the energy and industrial sectors,” chairman Nick Curtis told the ASX yesterday.
“Together with the amended debt amortisation schedule, the new capital provides a more secure financial base for the company."
Earlier this month, Lynas ended talks with financiers about a restructure of a $US225 million ($A243.44 million) loan, leaving it faced with making a sizeable repayment by itself.
The company blamed the blow out in full year losses partly due to the lower average selling prices for its rare earths metals. But the main reason were impairment costs of $196 million, up from $13 million in the 2012-13 year.
But anyone thinking of investing should consider this part of the auditor’s report:
"Without qualifying our opinion, we draw attention to Note 2.2 in the financial report which describes the principal conditions relating to additional funding being required by the consolidated entity. These conditions indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business,” the auditors wrote.
And note 2.2 on page 41 of Lynas’ financial report and notes to the accounts says:
"The financial report has been prepared using the going concern assumption.
"Sojitz debt facility and liquidity headroom
"Full details of the Group‟s material debt facilities are set out in note 24 of this financial report and include both the Sojitz debt facility as well as the Mt Kellett convertible bonds.
"As set out in that note on September 24, 2014 the parties to the Sojitz debt facility have amended the loan by signing a binding Term Sheet which takes effect from September 30, 2014.
"The key amendments to the Sojitz debt facility under the binding Term Sheet are set out in that note and include an amended principal repayment schedule.
"In conjunction with these new agreed Sojitz debt facility terms, the Group plans to complete an equity raising by way of placement and a rights issue, to be underwritten primarily by investors who specialise in the energy and industrial sectors, for a total of approximately $83 million (before cash transaction costs).
"The Group requires this additional equity to meet the amended principal repayments due under the Sojitz debt facility, particularly the next payment for US$10 million which is due under the binding Term Sheet no later than October 15, 2014, as well as to ensure it has the funding required to allow the Group to restructure its cost base and for general liquidity headroom purposes.
"The directors and management, having obtained a signed underwriting agreement, are confident that there are reasonable grounds to believe that the additional equity funding will be obtained in a timely manner over the course of October 2014 to satisfy both the Group‟s cash requirements and meet the next US$10 million Sojitz principal repayment due no later than October 15, 2014.”
In other words, invest carefully, if you want to.
