EDITOR: | July 24th, 2017 | 8 Comments

Lynas defies market to become a super metal heavy weight

| July 24, 2017 | 8 Comments
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It’s hard to believe that only a year ago, the fate of Lynas Corporation (ASX: LYC | OTC: LYSDY) (“Lynas”) hung in the balance; debts had mounted, Malaysian operations were troubled with opposition, and the market for rare-earth elements (REEs) had never been in worse shape. Today, the company proudly wears the crown of the largest producer outside of China, and as prices begin to recover amid the Chinese crackdown on illicit mining practices, Lynas now reports positive cash flow and record operating efficiency; talk about a turnaround!

The company has been busy undertaking three years of continuous operational improvements and cost management, positioning Lynas to take advantage of the upturn in the rare earths market. This month, the company’s quarterly activities report makes for delightful reading, having reached the level of largest supplier of NdPr to the free market with invoiced sales revenue of A$75.6m for the quarter, and producing their neodymium and praseodymium products at above design rate, with 1,343 tonnes for the quarter, up 17.6% on the June 2016 quarter.

China’s asking price for NdPr is being driven higher and higher by continued strong demand for magnetic materials and the effects of the China central government’s initiatives to enforce stricter environmental controls. Lynas increased cash flows from operating and investing activities to A$15.8m from A$11.6m in the previous quarter, and given that the NdPr price trend is expected to continue in the near term, the company’s position should only become stronger throughout 2017.

Neodymium and praseodymium are the company’s primary focus. The magnetic elements are experiencing increasing demand due to the rise in the use of magnetic motors in modern technologies such as electric vehicles and wind turbines; two areas in which significant growth is expected over the next decade. In fact, since many scientific groups began warning that carbon emissions must become negative as a matter of global urgency, interest in wind farming has been fueled even further, and some have even predicted that all new vehicles manufactured will be electric by 2030. It seems that the only way really for Lynas is up.

On top of the critical NdPr product, Lynas also produces cerium and lanthanum products which complement its operations. Lanthanum remained in high demand outside China this year, especially for high performance ferrite magnets and NiMH batteries, and all lanthanum produced by Lynas in this quarter was sold. The company also made significant quality improvements to cerium products, allowing them to increase their share of the catalyst and UV cut glass markets. In addition, Lynas have started developing new customized grades for niche applications in order to attract higher prices.

This continued refinement of practices and products is what has kept the company above water during the harsh times of the last half-decade, and there is nothing to suggest that Lynas will change tracks anytime soon. The company enjoys a rare position in that 100% of its assets are commissioned; nothing is sitting on the back burner. Given the hard-won top-dog status the company has achieved, shares are an absolute bargain right now at only A$0.10, and looking forward, it appears that the next few years will be far more fortuitous than the last for this miraculous survivor of some the harshest market conditions we’ve ever witnessed.


Lara Smith

Editor:

A Sr. Editor and Analyst for InvestorIntel and Managing Director and Founder of Core Consultants, Lara is an internationally recognized expert in the field of ... <Read more about Lara Smith>


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Comments

  • asrms

    Very concise summary describing a company that has battled the elements, obstructionists and naysayers over the last 5 years to show that determination and focus under astute leadership is a winning combination. Lynas is now a ‘moat’ company outside China, however, the CEO made a very interesting comment in a recent interview. She indicated that with the demand for Lynas focused REEs surging into 2030, that just to meet demand this REE universe will need at least one new Lynas every 4 years! Rather than fear competitors arriving on the field Lynas might, in fact, be welcoming them. Without such newbies, companies failing to find such REE product supply might instead start looking for replacements or alternatives; especially if the prices start to soar again, as happened a few years ago, almost destroying Lynas (and Molycorp). There is unlikely to be any competition for Lynas outside China for at least 2 years, maybe longer, as most hopefuls will find financing difficult (not to mention coming online problems), so Lynas will continue to tighten its grip on its particular focus. However, to keep prices trending slowly up several new additions to production can only benefit the REE universe and in a contrarian way further help Lynas.

    July 24, 2017 - 9:25 PM

  • John

    It all looks very promising and as long as the LAMP holds together, it all looks like blue sky for the future. Shame the share price isn’t going anywhere.

    July 25, 2017 - 3:27 AM

  • InvestorIntel Rare Earths Monthly – July 2017

    […] Lynas defies market to become a super metal heavy weight […]

    August 2, 2017 - 12:14 PM

  • Tim Ainsworth

    Tracy, quality research note just released by Adamas on the current state of play RE industry, can only suggest you invite Ryan’s commentary here.

    August 11, 2017 - 7:13 PM

  • Joe Ratermann

    “Shame the share price isn’t going anywhere.” John, the share price of LYSCF has risen from $.03US to over $.12US in the last 12 months. I think the share price will explode as the markets and public become aware of the critical need of NDPR beginning now and escalating in years to come. Outside of China, Lynas is the only go-to supplier. China is cutting production due to environmental problems caused by rogue miners. Perhaps another LAMP (or two) to be built before long?

    August 12, 2017 - 3:31 AM

    • Tim Ainsworth

      Credit Suisse first research note should be interesting

      August 13, 2017 - 10:04 AM

  • John

    Well, the Credit Suisse interest didn’t last long, did it?

    August 13, 2017 - 11:19 PM

    • Joe

      @John–was it mentioned somewhere that Credit Suisse had some kind of date arranged for commenting (or producing a “research note”) on Lynas’ current situation?

      August 13, 2017 - 11:51 PM

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