EDITOR: | May 29th, 2014 | 10 Comments

Growing bilateral ties between Australia and China may benefit Lynas

| May 29, 2014 | 10 Comments

LYNAS-REELeaderLynas Corp (‘Lynas’, ASX: LYC) has experienced a rollercoaster ride in the markets even as it has been trying improving performance and increasing production at its Lynas Advanced Materials Processing (LAMP) facility in Malaysia. However, yesterday, Lynas completed and closed its share purchase plan to raise at least AUD$ 30 million, as announced last April, prompting a 9% share price increase before announcing a trading halt in view of a proposed top up placement. The halt is expected to last until May 30 or when the placement goes through. The funds will allow Lynas to continue operations and “further time to strengthen its financial profile through the buildup of cash flow from production and sales”. Nevertheless, there is some optimism brewing in the Australian rare earths sector.

Lynas has managed to increase production and sales, generating some enthusiasm for its long term performance potential, even though its expenditures have increased 32%, due to higher than expected salary start-up costs at LAMP. Lynas maintained it had sufficient funds to keep running for at least 12 months even before the share raise and the additional placement. Lynas indicated that it will consider all reasonable solutions to improving its performance and to ensure its long term survival. Chinese investment has already helped more than one Australian rare earth mining company, the most notable and recent example of which is Arafura Resources (ASX: ARU), which signed a Memorandum of Understanding with China’s Shenghe Resources Holding to help develop its Nolans Rare Earths Project in the Northern Territory.

The possibility of Chinese intervention has increased and the conditions for this in the short term are ideal in ‘geopolitical’ terms. For starters, while the Pacific Rim region is ripe with tensions and a brewing arms race, the disappearance of Malaysian Airlines flight 370 last March has brought forced Chinese and Australian authorities to work together in a highly sensitive context, which, for better or worse, has set the stage for greater bilateral cooperation. Moreover, the volume of Australian exports of goods and services toward China has surpassed the AUD$ 100 billion mark in 2013 according to the Australian Bureau of Statistics. Therefore, China now accounts for nearly a third of the volume of Australian exports of goods and services and accounts for a much larger slice of that trade than the next highest countries including runner-up Japan (AUD$ 50 billion), South Korea (AUD$ 21 billion ), the United States (AUD$ 16 billion) and India (AUD$ 11 billion). Moreover, also in 2013, the volume of trade in both directions between the two countries reached AUD$ 151 billion or 20 percent more than 2012.

The trend underlines the fact that China is Australia’s main trading partner of Australia and suggests that Canberra may be edging closer to signing a free trade agreement with Beijing. Such an agreement has been on the table for many years, it remains under negotiation but similar agreements were recently signed with Japan and South Korea. Insofar as China and Lynas are concerned, the former would gain from Lynas’s highly advanced and environmentally superior processing facility. In the past, Australian politics have interfered in a deal involving China, Lynas and/or the Mt. Weld rare earth mines.

Now, companies like state-owned Chinese conglomerate China Nonferrous Metal Mining may aspire to acquire large pieces of Lynas with greater hopes of success as it seems Australian politics may be far more welcoming of such prospects than in the recent past (in 2009, the Australian government blocked China Non-Ferrous Metal Mining from acquiring a majority stake in Lynas in order to preserve resources) – given that the Australian Foreign Investment Review Board would need to approve such an acquisition. According to Morgans, a renowned Australian trading house, the Chinese ‘landing’ in Australia is already underway: “The Chinese are cementing their position in [Australian] resources, moving from investors to direct control.’’


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  • parbird

    Alessandro, i would appreciate your comments on Arafura’s propects, with or without chinese backing ?

    May 30, 2014 - 4:18 AM

  • Nevada George

    It was not too many years ago that the Australian Government
    blocked China from having any participation in Lynas operations.

    However, Global alliances are changing fast.

    I expect a China/Australian free trade agreement will be
    established using the currencies of the two countries and
    bypassing SWIFT which is based in USD. This would further
    weaken the influence of the dollar. This seems to be China’s
    modus operandi for the past few years when they have established
    bi-lateral trade agreements.

    China’s investments in Non-China rare earth mines strengthens
    their dominance in the commodities and enhances their Geopolitical

    What would a China/Lynas deal mean for us longtime holders of the stock? So far, all we have seen is cash burn and share dilution.
    What is next? — a reverse split?

    May 30, 2014 - 9:38 AM

    • Tim Ainsworth

      George, you appear to have missed the fact they have built a LAMP. China is a customer.

      Which, Simon, begs the question, why would they now be providing vital support to the magnetics stream if they had previously supported anti LAMP sentiments?

      May 30, 2014 - 12:32 PM

      • Nevada George

        I am well aware of the LAMP factoid.
        I am reminded of it every time I check my
        Junior Mining Portfolio.
        I often wonder what would have been the
        outcome/ROI if the LAMP had been built in WA.

        … Oh well, Life is all about choices.

        May 30, 2014 - 5:59 PM

      • Simon_Strauss

        If “they” had a long term plan to buy into or even takeover LYC then driving the market cap down by fiddling with the social sentiment towards the massively expensive LAMP would make sense.

        May 30, 2014 - 9:54 PM

        • Tim Ainsworth

          Wouldn’t it just be so much easier to lean on Rhodia via their Chinese JV’s to cancel both the tech agreement & foundation customer contract at any time over the past four years?
          Or now to stop/restrict vital sales of the magnetics stream into mainland China? Perhaps even metals fabrication for onsale to Japan?
          Instead they subversively fund a ragtag bunch of less than effective political activists in a foreign nation?

          May 31, 2014 - 3:28 AM

          • Simon_Strauss

            So in effect Tim are you are saying that the anti-LAMP protests didn’t drive Lynas’ market cap down?

            May 31, 2014 - 3:55 AM

          • Tim Ainsworth

            Lol, gotta luv the extension, in effect I’m saying it is illogical that mainland Chinese interests would waste any time or money with the Malaysian eco terrorists.

            May 31, 2014 - 6:00 AM

  • Simon_Strauss

    A very interesting analysis Alessandro. Having been a long term Lynas Corp. investor I still wonder where the money and the “smarts” that funded and drove the anti LAMP campaign originated from. At the moment our social media analysts are seeing the beginnings of a similar campaign targeting Greenland Energy and Minerals, another of our ASX listed rare earths companies with massive rare earth resources. Could it be that these campaigns have similar origins and similar motivations?

    May 30, 2014 - 9:40 AM

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