EDITOR: | October 10th, 2017 | 18 Comments

Permanent Magnet Usage to Bolster Lynas

| October 10, 2017 | 18 Comments
image_pdfimage_print

We’re no strangers to Tesla’s announcements making waves in resource markets, but the most recent decision to use permanent magnet based motors in the new Model 3 RWD in order to increase performance and reduce costs benefits one organisation in particular; not only are neodymium (Nd) and praseodymium (Pr) the highest value products coming out of Lynas Corporation (ASX: LYC | OTC: LYSDY) (“Lynas”), but this year the company became the top global producer of these rare-earth elements outside of China, and as such, are perfectly positioned to take advantage of increasing prices throughout 2017.

Powertrain motors featuring permanent magnets provide numerous benefits: lower weight, higher torque density and improved efficiency when compared to induction motors, making them perfect for hybrid electric (HEV) and full electric vehicles (EV). This means they provide faster acceleration, reduced vehicle weight and additional space for other components. It is therefore conceivable that NdPr motors will become the dominant EV technology in years to come.

Some EV models do already use permanent magnets in either the traction motor or generator, including the Chevrolet Bolt, but it is expected that a much higher proportion of future models will incorporate permanent magnet motors as the market becomes more competitive. Sales of HEV/EVs totaled 3.2 million units in 2016, with HEVs and plug-in HEVs forming 76% of sales. By 2020, sales of HEV/EVs are forecast to reach 9.4 million units, with EVs forming 42% of sales. These forecasts are bolstered by the fact that France and the UK recently declared that they will both ban the sale of petrol and diesel vehicles by 2040, and Volvo claiming that they will manufacture only electric vehicles from 2019.

Following from the climbing popularity of permanent magnet motors, demand for rare earth elements used in their manufacture is forecast to increase by 10.5% annually through to 2020. Nd/Pr types form the vast majority of rare earth permanent magnets, and have seen prices increase significantly in 2017 as a result of continuing closures of mining operations in China. China have stuck closely to their commitment to gaining control over the sizeable industrial complex, resulting in large scale shutdowns of illicit operations across the entire country.

China once produced almost 100% of the world’s rare earths, but a more recent estimate puts this figure closer to 80%. This has been the black swan for which Lynas were waiting so long; the company consistently stated that their biggest challenge was protracted poor market conditions, which miraculously evaporated throughout this year. Having the highest grade rare-earth mine in the world will only get you so far; if the right market conditions are absent for whatever reason, the product sells at a loss and the 25 year mine life collapses into a year or two.

However, prices are going up, and Lynas have recently completed a second mining campaign at their Mt Weld site, increasing available ore by another 240,000 tonnes at a grade of 17.6% rare-earth oxide. The performance of company stocks so far this year may have been impressive, but the near-perfect conditions that have materialised in 2017 lead me to believe that Lynas will be enjoying expanding margins for many years to come. The rare earth buy window is far from closed, and, for me at least, Lynas are the producer-of-choice for investors looking for exposure.


Lara Smith

Editor:

A Sr. Editor and Analyst for InvestorIntel, Lara is an internationally recognized expert in the field of mining analysis and a well-known speaker, Lara has ... <Read more about Lara Smith>


Copyright © 2017 InvestorIntel Corp. All rights reserved. More & Disclaimer »


Comments

  • Brett

    Has anyone at investorintel had a chance to look over Rift Valley resources rvy:asx as of yet to see if their deposit is viable in grade and size to be profitable.
    A friend has put me onto them but I am yet to take a position as very low mc for me.

    October 10, 2017 - 10:14 PM

  • Rog

    Rainbow Rare Earths now within an ace of first production at Gakara

    Share
    “The mantra this year has been that we are aiming for first sales by the end of December,” says Martin Eales of Rainbow Rare Earths (LON:RBW).

    “I’m pleased to say we’re on track.”

    READ: Rainbow Rare Earths shortly to commence production and sales in Burundi

    Rainbow has spent the last eight months or so since it listed in January, pushing on with development work at the Gakara rare earth project in Burundi.

    In order to hit the year-end production target, says Eales, the company has had to develop both mine and processing plant at the same time.

    Both undertakings now nearing completion

    Indeed, mining of ore has already commenced at the Gasagwe site, following on from a pre-stripping operation which began back in April.

    The main vein has now been exposed to a depth of between three and five metres along 90 metres of strike, and the ore that’s now being mined from it will be stockpiled pending the start-up of the plant within the next two months.

    Plant and mine are not immediately adjacent, as the plant has been situated in a location where the ground is more generally level and where there is easier access to wider infrastructure networks.

    Company to issue new guidance on 4 October

    Exactly how much ore and concentrate the company will produce in the current financial year will become clearer on 4th October when the company issues new guidance alongside preliminary results.

    But even ahead of that, it’s clear Rainbow Rare Earths is sitting in a very strong position.

    READ: Tesla effect filters down to Rainbow Rare Earths

    For a start, the basket price of the rare earths that it will be selling has increased by 80% in the year to date.

    So far as anyone can tell, Gakara is the highest grade rare earth deposit in the world. Typically hard rock rare earths deposits run at grades of between 3% and 6%.

    “Ours is an average of 57%,” says Eales. “The main vein at Gasagwe tested at grades of 62%, so our grade is incredibly high.”

    Exciting times

    That in turn allows for a fairly simple operation.

    “We’re simply selling crushed rock. We’re not taking it any further,” says Eales.

    WATCH: Rainbow Rare Earths reports ‘fantastic’ grades at Gasagwe target in Burundi

    It’s helpful, of course, that customers have already been lined up through a partnership with thyssenkrupp Raw Materials, which is handling the trading of Rainbow’s concentrate.

    At this stage the plan is to achieve a near-term run rate of 5,000 tonnes per year by the end of next year.

    But watch for further updates. These are exciting times for Rainbow and a share price which has been broadly range-bound in recent months may shortly be due a re-rating.

    October 11, 2017 - 5:51 AM

    • Tracy Weslosky

      ….way to paint the world with a rainbow ROG — . Let’s give LYNAS their due please and do what you just did again, and we will graciously publish your name and contact information, so our readers can write you directly.

      October 13, 2017 - 4:04 PM

      • Rog

        No need to get uptight, Laura. Lynas is now a good stock, although it was a huge disappointment a few years ago, when the price crashed. I was merely pointing out that Rainbow is also a good stock with the world’s highest grades, and they will be marketing by Christmas.

        October 15, 2017 - 7:41 AM

        • Lara Smith

          It’s Lara, not Laura. I haven’t commented once so not uptight. Personally, from my experience and personal knowledge, I would back just about anything the Pouroulis family has a hand in so I am agreeing with you.

          October 15, 2017 - 8:01 AM

          • Rog

            Ah, it was Tracy, sorry Lara. Glad we agree! I own a Rainbow and nay
            Well buy Lynas.
            Rog

            October 15, 2017 - 1:19 PM

    • Tim Ainsworth

      ROG, care to share some very basic metrics?

      TREO% con?
      Suite values?
      CoP?
      Sales value?

      Reads like another Magic Pudding ATM.

      October 18, 2017 - 12:45 PM

  • Ed Moore

    Why use a picture of an alnico magnet to introduce an article about rare earth magnets?

    October 11, 2017 - 7:40 PM

    • Tracy Weslosky

      Because someone on our team made an error….thanks for doing my job better than I am doing it, and let me know if you would like to interview for the role. Photo is being changed as we speak.

      October 13, 2017 - 4:05 PM

      • Ed Moore

        Thanks for accepting my suggestion on the graphic. Thanks for the offer on work, but my plate is rather full these days and we have slightly divergent business models in mind.

        October 16, 2017 - 6:35 AM

  • asrms

    If Lynas has the majority of its product already committed to the Japanese (which no doubt includes their autos), will they even be able to supply just some of Tesla’s REE needs as well? One may assume that the Japanese auto’s will like the other car manufacturers be increasing their demands for REEs to meet the exponentially increasing EV market. Therefore, this is where Lynas supply will be directed (after all the Japanese also saved Lynas and hold much of the company debt and equity). I think that these unmet worldwide auto REE demands (plus many other areas of supply need) will only continue to drive REE prices higher. In fact, in a contrarian way other REE producers coming online will help Lynas meet ROW demands, thus avoiding an unhealthy rise in prices (and any potential look for alternatives by auto manufacturers); events which helped to decimate both Lynas and Molycorp beginning back in 2011. Lynas is now the ‘moat’ LREE company outside of China (and probably more highly regarded due to its efficiency, transparency and product verification than any of the 6 Chinese majors). With a 1 for 10 reverse split coming which will probably foreshadow a fast debt settlement, and with potential blowout 1/4s approaching (check quarter report which should be out in Oct) Lynas has tremendous prime mover status/opportunity and should over time amply reward long time suffering shareholders if it is not bought out first (which should still be at a hefty premium). JMHO.

    October 11, 2017 - 8:19 PM

    • Chris

      I think you will find Lynas can expand capacity to meet increased demand much quicker than any green field project would take to complete keeping in mind building a processing plant is the easy part, getting it to work properly is the hard part.
      The Lamp has almost double capacity spare in the C&L section so bolting on two additional trains to almost double production wont be an issue and will be far less capital intensive and de-risked then any green field project IMO.

      October 11, 2017 - 9:48 PM

  • JJBeswick

    The hopefuls such as Rift Valley and Rainbow may end up part of the serious RE space sometime. I doubt it. There are probably several ahead of them that feel less need to promote themselves here; Arafura and Alkane for example.
    When it comes to generating cash from the increased RE prices, Lynas is the ONLY ROW game in town currently.
    The Lynas product is selling and the cash is flowing as I type.
    The rest can update their BFSs and continue to hope for funding .
    Given the expansion capacity at Lynas and also inside China it’s hard to see a serious new RE producer ramping up in the next decade.

    October 12, 2017 - 11:05 AM

  • Joe O

    Been finally accumulating LYNAS over the last couple weeks. Any pullbacks I may grab more. I hold a decent amout of ucore, a chunk of ecobalt and some texas mineral resources. My lynas holdings
    are catching up though. I missed the first inning but it looks like it could be early in the ballgame still. Can see this making a nice 5 year run.

    October 12, 2017 - 2:38 PM

  • Reno Muscat

    Tracey … have you had the chance to interview Rocky Smith COO Peak Resources and see how things are tracking at Ngualla? Good to see NdPr prices on the move and nil mining in China in October will help. China’s domestic consumption and EV growth will take up most of China’s legal supply. The small time illegal operators are being shut down fast .

    October 14, 2017 - 2:42 AM

  • Scott Friedberg

    Thank you Lara Smith for this article. Normally when I read articles about Lynas corporation, they deal mainly in statistical or time series analysis, with the purpose to determine whether people are buying and will continue to buy. It is much more informative to know if their is a real growth prospect for the company. Your information gives (me at least) a clear view of what to expect. Your articles site cause and probable effect – increased demand, crack down on illegal mining, market price changes, market share. I appreciate you keeping us informed, not of buying and selling statistics of investors- and subsequent statistical inferences thereof, but with actual market conditions. Your more qualitative data gives a lot better insight.

    October 14, 2017 - 8:07 AM

    • Scott Friedberg

      their = there

      My apologies for the spelling.

      October 14, 2017 - 8:28 AM

  • TBunts

    Producing ore isnt the same as producing industry ready REEs…Just sayin’
    Lynas have outwaited China and its agents in Malaysia.
    All that is needed for Lynas to get a great wave is a polital block to Chinese REE.
    Counterintuitive to anyone except those with knowlegde of Chinese face.

    So glad Duncan wasnt sold to you know who.. Everyone forgets that it is there.

    October 18, 2017 - 4:25 AM

Leave a Reply

Your email address will not be published. Required fields are marked *