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UPDATE 2-Australia's Lynas shares dive on rare earths plant delay

* Plant delay seen depleting Lynas cash reserve

* Court decision due Nov. 8 on whether to review licence

* Company likely to need to sell new shares - broker

* Shares slump to six-week low

(Adds Lynas, lawyer comments)

By Sonali Paul MELBOURNE, Oct 11 (Reuters) - Shares in Lynas Corp Ltd

plunged up to 19 percent on Thursday as it faced another delay in opening its rare earths plant in Malaysia, raising the prospect the company may need to shore up its funding with a share sale.

A Malaysian court extended a hold on the Australian company's operating license to Nov. 8 on Wednesday while it decides whether to consider a review aimed at permanently blocking production at the $800 million plant in Kuantan, on the country's east coast.

Lynas received the temporary operating licence in September for the rare earths plant, the biggest outside China. It had aimed to start production this month, processing material from its Mt Weld mine in Western Australia, but said on Wednesday that would be delayed and gave no new timetable for the opening.

A lawyer working for the Save Malaysia Stop Lynas group opposing the plant said if the court decides on Nov. 8 to go ahead with a review of the license approval, the review could take one to two months.

That would add to what has already been a year-long delay fueled by community protests.

Lynas shares fell to a six-week low of A$0.69 in early trade and closed down 15 percent at A$0.73, reflecting worries the company will need to raise equity to shore up its funds the longer the delay runs.

"Given the current delays, we believe the core tenet for our argument to sell Lynas is still applicable -- namely risks surrounding funding, dilution, commission and waste disposal solution," Foster Stockbroking said in a note to clients on Thursday.

Lynas was not immediately available to comment on the chances it may need to raise equity.

However when Lynas received its temporary operating licence in September, Executive Chairman Nick Curtis ruled out an equity raising and said the company would tap banks for a new working capital facility.

Lynas had A$205 million in total cash at June 30, but A$81 million of this can only be used for a future expansion of the plant.

It has said it is spending A$8 million a month just to stand still and needed to spend A$48 million to complete the plant and about A$12 million on other items by Dec. 31.

That would leave it with just A$16 million in unrestricted cash if production were delayed to December.

Brokers had raised concern that the A$1.25 price for converting a $225 million bond issued to Mount Kellett Capital Management earlier this year may be slashed due to the licence being put on hold, adding to concerns that other shareholder would be diluted.

However under the terms of the convertible bond, the price would need to be re-set only if the company did not receive its temporary operating licence by Oct. 15. Given that Lynas received the licence in September and still has it, though it is on hold, a re-set has not been triggered.

Activists linked to the environmental group Save Malaysia Stop Lynas want the court to suspend the licence until two judicial review cases challenging the government's decision allowing the plant to operate are heard.

The company says its plant is safe and is not comparable to a rare-earths plant in Malaysia that was shut by a unit of Mitsubishi Chemicals in 1992, after residents there blamed the plant for birth defects and a high rate of leukemia cases.

($1 = 0.9759 Australian dollars)

(Additional reporting by Stuart Grudgings in KUALA LUMPUR; Editing by Richard Pullin)

((Sonali.Paul@thomsonreuters.com)(+61 3 9286 1419)(Reuters Messaging: sonali.paul.thomsonreuters.com@reuters.net))

Keywords: LYNAS SHARES/