The collapse of United States rare earths miner Molycorp cannot bode well for local player Lynas Corp.
Molycorp filed for Chapter 11 bankruptcy this week to restructure $US1.7 billion ($2.2 billion) in debt. China has eased export restrictions on rare earths, which has sent prices lower, while the company also ran into problems at its Mountain Pass mine, located in the Mojave desert, California.
Lynas has $US205 million worth of payments due in 2016 for a secured debt facility, while $US225 million worth of unsecured convertible bonds are repayable in full in July, 2016. The company has a market value of just $111 million.
The convertible bonds are held by distressed debt fund Mount Kellet, which struck a deal with Fortress Investment Group last month. Fortress invested $US200 million into Mt Kellet's funds and became a co-manager ot them.
Lynas said in its half-year accounts that its ability meet its debt repayments over the next 12 months will depend on a variety of factors, "only some of which are within the control of the group."
The group lists rare earths market prices as one of these factors, along with sales, production volumes and operating expenses.
A move by China a few years ago to restrict exports of rare earths at a time of surging demand prompted companies such as Molycorp and Lynas to launch production of rare earths at new mines.
Since then, China has eased export restrictions which has sent prices of most rare earths lower, putting both Molycorp and Lynas under extreme financial pressure. Both Lynas and Molycorp have been seeking to lift output while also renegotiating loan terms to ensure their survival.
