Is it time to sell Lynas Corporation Limited?

Lynas Corporation Limited (ASX:LYC) investors have suffered for too long

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Lynas Corporation Limited (ASX: LYC) has suffered more than its fair share of setbacks and difficulties, with the only tangible outcome for shareholders being an almost complete loss of capital. The company has been a source of constant frustration for analysts and investors alike. after offering such promise in the late 2000's as a potential major player in the global rare earths market.

2014 Problems

Lynas' 2014 seemed to be a repeat of previous year's production problems. Finance problems also dominated the headlines as the company's shares plunged from 34 cents in January 2014 to a low of 4 cents in December. The year was punctuated by a heavily discounted capital raising and a renegotiation of finance terms with its Japanese-based investors.

Sell in 2015?

It appears that there won't be any reprieve for Lynas in 2015. The share price plunged by a further 8% on Tuesday following an announcement that China had removed restrictions on rare earths exports, a move that could see global rare earth prices fall even further.

The quota was applied in 2009 and resulted in a host of companies, including Lynas, starting up on the promise of high rare earth prices over the long term.  This hasn't come about and many suppliers are apparently selling below cost. Lynas has noted that profitability will only occur when higher volumes start to be produced from its Malaysian processing plant.

Worrying Times

Lynas' founder and outgoing chairman Nicholas Curtis noted that the November AGM that the project had been significantly more expensive than previously planned, but largely blamed the severe drop in the price of rare earths – a problem consistent among many mining companies at the moment.

Lessons Learnt

The plight of Lynas is similar to that of many small mining companies in Australia. With China controlling 86% of the global market, Lynas has no control over the price of the goods it sells and therefore inherently high risk. Now might be a good time to head for the exit.

Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

More on Resources Shares

Image from either construction, mining or the oil industry of a friendly worker.
Resources Shares

Why did the Mineral Resources share price rip 15% higher today?

The iron ore and lithium giant was the fastest riser of the ASX 200 on Thursday.

Read more »

A man wearing a hard hat and high visibility vest looks out over a vast plain where heavy mining equipment can be seen in the background.
Resources Shares

2030 forecast: As Australia's iron ore export earnings decline, copper will rise. What does this mean for BHP shares?

BHP is expanding its iron ore and copper production.

Read more »

An engineer takes a break on a staircase and looks out over a huge open pit coal mine as the sun rises in the background.
Resources Shares

4 reasons to buy BHP shares today

A leading expert outlines four key reasons BHP shares are a buy.

Read more »

Businessman walks through exit door signalling resignation
Resources Shares

Pilbara Minerals share price drops as CFO announces resignation

It’s been a challenging few years for outgoing Pilbara Minerals CFO Luke Bortoli.

Read more »

Miner looking at a tablet.
Resources Shares

What happened with the BHP share price in May?

Did you buy BHP shares in May? Here’s how much the ASX 200 miner returned.

Read more »

Two men in hard hats and high visibility jackets look together at a laptop screen at a mine site.
Resources Shares

Should I buy Fortescue shares today?

A leading investing expert offers his verdict on the outlook for Fortescue shares.

Read more »

A female miner wearing a high vis vest and hard hard smiles and holds a clipboard while inspecting a mine site with a colleague.
Resources Shares

Is this a good time to buy BHP shares?

Should investors jump on the ASX mining shares right now?

Read more »

a miner holds his thumb up as he holds a device in his other hand.
Broker Notes

Why Macquarie expects this ASX 200 copper stock to surge 36% in a year

Macquarie forecasts some hefty gains ahead for the ASX 200 copper miner. But why?

Read more »