Lynas restructuring leads an all-Australian rare earths market tide
The share performance of the only two producers of rare earths outside of China Lynas Corp. (ASX: LYC) and Molycorp (NYSE MKT: MCP) in the past two would have suggested that the REE market has picked up some favourable winds. Both companies, despite a number of concerns surrounding their focus on light rare earths (LREE), saw gains. Molycorp was heading down a steep slope, reaching its yearly low of USD$ 1.61/share, when it suddenly started to rise on July 22, making ever higher gains to reach USD$ 2.15/share on July 24, gaining 14.44%. Lynas, for its part was trading at its highest levels since May of this year, rising some 32% sharply from the AUD$ 0.12/share range to the AUD$ 0.20/share range. Meanwhile, the InvestorIntel Members Index gained 1.88%, which suggests that the REE market did not experience any major moves, pro or against, last week. Nevertheless, there was an interesting pattern, which also helps to explain Lynas’s sharp rise. Most of the Australian rare earths and technology metals companies saw gains last week. Hastings Rare Metals (ASX: HAS) lead the team — up 19.4%. Alkane Resources (ASX: ALK | OTCQX: ANLKY) gained 10.2% in OTCQX trading and 9.8% on the ASX, while Arafura Resources (ASX: ARU) confirmed the Australian upswing, gaining a more modest but still noticeable 6.59%.
Lynas Corp served as the likely trigger for the Australian REE rally. On July 7, Lynas announced that it would relocate its headquarters to Malaysia, where its processing plant (Lynas Advanced Metals Plant – LAMP) is located. Lynas also wants to reduce the workforce, among other things, to reduce costs, while working to increase production. After the company suffered some setbacks at its mine in Mt. Weld in Australia and delays at LAMP, Lynas also announced that it was starting to reach the desired capacity. The new CEO, Amanda Lacaze, as Tracy Weslosky and Jack Lifton predicted in a recent video published on InvestorIntel, was brought in to clean up Lynas’s finances. Indeed, Lacaze has transferred Lynas’s headquarters as the first of a series of measures to rationalize the command chain, which also includes the aforementioned reduction of the workforce, the renegotiation of contracts with suppliers and improving the approach to procurement. Lynas, has been struggling with technical issues at the (almost) AUD$ one billion LAMP facility, which was technically open for production in November 2012.
The company is extracting rare earths at Mount Weld in Western Australia and then shipping them to the LAMP facility in Pahang, Malaysia. The slow plant startup and the contemporaneous slump in rare earth prices have left a scar on Lynas’s balance sheet, which was forced to take AUD$ 40 million of fresh capital and to refinance AUD $ 215 million in liabilities last May. Ms. Lacaze took over as CEO last June, replacing the more technical/production focused Eric Noyrez. The market has, evidently, rewarded Ms. Lacaze and her cost cutting measures, triggering a mild ‘tide’ in Australian rare earth stocks. Arafura expects to complete its Feasibility Study by September 2015 “if not sooner”, thanks to Chinese partners have been helping Arafura to find ways to optimize the flow sheet in order to speed up the process leading to production. Alkane has benefited from Japanese industrial support and a new Japan/Australia Free Trade Agreement, which has confirmed Australia’s rare earth producing and exporting potential. Moreover, Alkane is also involved in gold production, having opened its Tomingley gold mine southwest of the Dubbo Rare Earths project last March. Alkane has estimated an initial yearly production of some to 60,000 ounces. The timing of Tomingley’s opening was ideal as Alkane has benefited from soaring global gold sales, allowing the Company to essentially ‘hedge’ against the rare earths price slump. Molycorp made its gains after it announced a capital increase and the issuance of a convertible bond, even if it appears unlikely that the Mountain Pass project will be completed on schedule; nor is it likely that operating costs will be significantly reduced while the ramp-up of the Mountain Pass mine is unlikely to happen as originally promised.
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