EDITOR: | December 17th, 2020 | 11 Comments

The 600 pound gorilla in the room – welcome, Lynas Rare Earths

| December 17, 2020 | 11 Comments
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In the rare earths space, it is the 600 pound gorilla, but we mean that in a positive way. Investors familiar with rare earths will know this, but for those of you just coming to learn about the company, it is one of only two producers of scale of separated rare earths outside of China and is the second largest in the world.

Welcome to the “new Lynas” Corporation, officially renamed “Lynas Rare Earths Limited” (ASX: LYC) on December 1, 2020. Listed on the Australian Securities Exchange, the company has a market capitalization of approximately AU$3.3 billion. The company’s share price hit an all-time high on December 4, 2020 as the market pays close attention to this industry leading company. Lynas ADRs can also be found on the US OTC, trading under the symbol LYSDY.

What a difference a year (or three) makes. It was just 2017 when the company consolidated its shares on a 1:10 basis, after five challenging years in the rare earths market when the company was on the verge of going bust. Recall that the global rare earths’ price bubble collapsed in 2014 on the back of a negative World Trade Organization decision against China. A global industry had all but been decimated and lowest cost production and industry dominance was now Chinese.

Except for Lynas. The company mines rare earths in Western Australia at Mt. Weld, which is one of the world’s highest grade rare earths mines. The mined ore is concentrated at the Mt. Weld concentration plant and sent for further processing to Lynas Malaysia’s Advanced Material Plant near Kuantan, Malaysia where the facility, commissioned in early 2013, produces separated rare earth oxide products for sale to customers in Japan, Europe, China and North America. Currently, the most valuable product produced at the plant is praseodymium/neodymium (NdPr), used in magnets.

With the increasing interest in all things electric and electronic, rare earths have again come to the fore. Specifically, because so many things need electric motors (more than 140 small electric motors in the average automobile – electric and hybrid electric vehicles use even more small electric motors and larger traction motors), global demand is increasing.

We have known about this for a long time and the world is only now (again) starting to pay attention. Because of previous global price increases and the subsequent price collapse in the rare earths, China arguably has the world’s most complete rare earth industry chain. This means in order to make full use of the rare earths mined in various countries, miners must come to China for processing. China produces approximately 80% of the world’s rare earths but can only supply about 30% of the raw ore.

This is a problem, because the digital transformation is unstoppable – there could be as many as eight rare earths metals in your smartphone and who can’t wait to get the next latest and greatest device? However, companies using rare earths for our end-use products are becoming focussed on supply chain resilience and suppliers who are closer to home (also a strategic decision). This was also recognized by US President Trump, who signed an executive order at the end of September 2020 declaring a national emergency in mining in an effort to jump (re)start the domestic industry.

Ahead of the curve, management of Lynas had already recognized this and despite being a global leader in rare earths, in 2019 put into action “Lynas 2025” – a plan to grow production and create a new rare earths processing centre in Western Australia. In addition, also in 2019, the company announced a Memorandum of Understanding to develop a rare earths processing facility in the United States. To be located in Texas, Lynas and the company’s partner announced in April 2020 that they will receive “Phase 1” funding from the U.S. Department of Defense (DoD) for planning work for the construction of the facility. Initial plans are to process ore at the facility from the company’s mine at Mt. Weld and it was announced that in July, 2020 the companies signed a contract with the US DoD for detailed design of a heavy rare earths processing facility.

As goes the rare earths industry, so goes Lynas and in August 2020, the company successfully raised AUS$425 million in new equity to fund future and ongoing activities in Australia and Malaysia, giving the company an even stronger balance sheet to finance future growth plans and maintain an industry leading position in the rare earths space. At year-end June 30, 2020, the company had positive working capital of approximately AUS$84 million plus a loan of AUS$164.9 million.

The world absolutely needs more rare earths to supply a seemingly unquenchable demand for new and evolving products. The rare earths supply chain has been dominated by China, but refreshed interest in strategic and domestic supply has caused the world to re-evaluate the current rare earths supply system. Despite a number of new and promising startup rare earths companies, Lynas continues to be the global leader. Does it belong in your portfolio?


Editor:

Frederick Kozak is a Professional Engineer with extensive oil and gas, and international business experience and has more than 25 years involved in capital markets ... <Read more about Frederick Kozak>


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Comments

  • Rare Earths Investor

    Don’t forget that the RE processing ‘drive’ in the US (if it gets off the ground with incoming Democratic Admin’ support) has MP Mats’, Energy Fuels and Rare Earth Salts along with Lynas who will all be competing for the small production needed to fuel a US strategic military requirement. How many processors will be required? Will enough component making and endline manufacturing return to US shores to make such an amount of processing even needed? Much of Lynas’s future growth may depend on these questions.

    December 17, 2020 - 11:40 PM

  • Willisj Jones

    I want a lot of money

    December 18, 2020 - 4:03 PM

  • Danny Lazarevski

    My name is Danny & LYNYAS was my first buy when I started investing in shares back in March April.
    Very happy with my return and recommend it to everyone i talk to

    December 18, 2020 - 6:03 PM

  • Colin

    Lynas has learnt a lot, from early kiln issues ,probably the most important issue is resource grade droping ,causing production costs to go up.

    December 19, 2020 - 12:16 AM

  • WmH Richards

    Thank you

    December 19, 2020 - 5:43 AM

  • WmH Richards

    Thank you. A fine job.

    December 19, 2020 - 5:44 AM

  • WmH Richards

    I feel more secure.

    December 19, 2020 - 5:45 AM

  • Rare Earths Investor

    In the US Lynas is in competition with Energy Fuels, MP Mats (probably Rare Earth Salts), etc for the small amount of RE L and H processing that may be needed to support US strategic needs. We are assuming that the new Democrat admin’ will continue to support the within borders RE processing drive Trump started. A big assumption with the Dem’ lefts’ agenda, never mind we probably don’t need 4 processors for any potential US military needs. Wonder if this comment will actually stay published this time?

    December 19, 2020 - 8:47 AM

  • David Hodder

    What’s the story with Northern Mineral please NTU ASX

    December 19, 2020 - 6:55 PM

  • Don

    who needs Lynas, I am sure what search minerals got in Canada and what U S rare earths.Texas minerals, round top deposit, we can be a North American rare earth supplier.
    Don

    December 19, 2020 - 10:37 PM

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