{"id":60532,"date":"2012-09-06T11:50:25","date_gmt":"2012-09-06T01:50:25","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/09\/06\/lynas-gets-the-green-light\/"},"modified":"2012-09-06T11:50:25","modified_gmt":"2012-09-06T01:50:25","slug":"lynas-gets-the-green-light","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/09\/06\/lynas-gets-the-green-light\/","title":{"rendered":"Lynas Gets The Green Light"},"content":{"rendered":"

\n\t – Lynas<\/span> receives Temporary Operating Licence<\/span> in Malaysia
\n\t – Technical issues for LAMP project now the main issue 
\n\t – Ramp-up of LAMP should ease cash flow and working capital concerns
\n\t <\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tLast week FNArena<\/span> noted Deutsche Bank recommended selling Lynas<\/span> Corporation ((LYC<\/span>)), partly given the view potential cost overruns for the ramp-up of the Lynas<\/span> Applied Materials Plant (LAMP) project in Malaysia implied an insufficient cash position for the group. While Lynas<\/span> had received supposed approval <\/em>to begin operating the plant, the Malaysian government had not yet issued an actual licence<\/span> and did not appear in any hurry to do so.<\/p>\n

\n\tBut with Lynas<\/span> finally receiving a Temporary Operating Licence<\/span> (TOL<\/span>) from the Malaysian Atomic Energy Licensing Board yesterday, Deutsche suggests the game has now changed. This is because the granting of the licence<\/span> means a reset event on a convertible bond position that would have occurred in October will now not take place.<\/p>\n

\n\tAs well, Deutsche suggests Lynas<\/span> is now in a better position to negotiate its funding needs, to the extent $120 million in debt will likely be secured for the LAMP project rather than the previous assumption of $150 million in equity funding. <\/p>\n

\n\tFactoring this into its model sees Deutsche adjust earnings forecasts for Lynas<\/span>, the result being price target increases to $0.85 from $0.50. The broker's rating has also been upgraded, Deutsche moving to a Hold recommendation from Sell previously.<\/p>\n

\n\tThe granting of the licence<\/span> doesn't remove all the questions with respect to the LAMP project, Macquarie suggesting risks have simply shifted from political to technical. Deutsche agrees, pointing out the plant will be a technically complex operation, so offering potential for timing and cost overruns.<\/p>\n

\n\tThe other issue for Macquarie is the delay to Phase 1 production, due to the TOL<\/span> grant delay, will delay sales, meaning lower forecast cash flows available for working capital during the start up of Phase 2 for the plant.<\/p>\n

\n\tManagement at Lynas<\/span> has indicated potentially $50-$70 million may be needed for Phase 2 working capital, though Macquarie notes if this is required Lynas<\/span> is likely to have access to bank debt.<\/p>\n

\n\tGiven declines in recent weeks, JP Morgan has also factored more conservative forecasts for rare earth prices into its model for Lynas<\/span>. This sees cuts to earnings per share (EPS) forecasts, the broker now expecting a loss of 4.9c this year and a loss of 3.6c in FY13<\/span>. <\/p>\n

\n\tMacquarie has similarly lowered its earnings forecasts for Lynas<\/span> to reflect delays to production. Consensus EPS forecasts for Lynas<\/span> according to the FNArena<\/span> database now stand at minus 1.8c this year and 1.8c in FY13<\/span>, though updates from all brokers have not yet been forthoming<\/span>.<\/p>\n

\n\tThe changes to its numbers see JP Morgan lower its price target on Lynas<\/span> to $1.50 from $2.00, which compares to a consensus target according to the FNArena<\/span> database of $1.21. Targets range from Deutsche Bank at $0.85 to JP Morgan at $1.50.<\/p>\n

\n\tWith news of the TOL<\/span> being granted JP Morgan expects a positive response in terms of the Lynas<\/span> share price, particularly given a large short position in the stock. For the week ending August 29 Lynas<\/span> was in the top 10 short positions in the Australian market.<\/p>\n

\n\tThe anticipated positive response is not enough for JP Morgan to shift from a Neutral rating, as the broker expects in the current economic environment the market is not likely to ascribe full value to companies with development risk and balance sheet leverage.<\/p>\n

\n\tMacquarie remains more positive, rating Lynas<\/span> as Outperform. This in part reflects significant upside relative to the broker's revised price target of $1.20, down from $1.70 previously, as well as an expected easing of investor concerns with respect to working capital and cash flow for Lynas<\/span> if commissioning is successful.<\/p>\n

\n\tIn a stronger market shares in Lynas<\/span> today are higher as JP Morgan had expected and as at 11.30am the stock was 19c<\/span> or more than 30% higher at $0.785. Over the past year the stock has traded in a range of $0.56 to $1.805, the current share price implying upside of a little under 40% relative to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t
\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Lynas has finally been granted a licence for its plant in Malaysia but while the share price has responded positively, brokers see reasons to remain cautious.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/60532"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=60532"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/60532\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=60532"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=60532"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=60532"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}