EDITOR: | March 5th, 2019 | 8 Comments

Lynas positioned well with increased market attention on rare earths.

| March 05, 2019 | 8 Comments
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As most investors already know, rare earths are not really rare. Despite this it is hard to find large scale rare earth projects at economic grades, the CapEx to get a new rare earth project into production can be very costly, and rare earth projects typically take a long time to go from discovery to production. This means new supply is constrained. Furthermore China dominates rare earth production, with about 80% market share.

On the demand side the electric vehicle and clean energy boom is causing a large increase in rare earths demand, in particular for neodymium (Nd) and praseodymium (Pr) – the magnet metals. Rare earths already play a critical role in the electronics, automotive, environmental protection, and petrochemical sectors. Industry analysts expect demand in key end use markets to grow well ahead of global GDP, creating strong demand for rare earth materials.

Examples of products using rare earths

  • Wind turbines. NdFeB magnets enable direct drive wind turbines technology providing better electrical yield, reduced maintenance and improved reliability (no gear box).
  • Automotive catalysts. Cerium-based new technology enables Lean NOx Trap – a very compact catalytic system that allows diesel compact cars to match with NOx emission regulation
  • Hybrid electrical vehicles. A fast growing segment which contributes to controlling pollution at its point of emission.
  • Electric Vehicles (EVs) (magnets for electric motors). NdFeB magnets enable substantial weight reduction contributing to overall energy savings and reduction of CO2 emission​. A key growth area for the rare earths industry is the use of permanent magnets (using neodymium (Nd) and praseodymium (Pr)) in the electric motors of EVs. Each EV uses ~ 1 to 3 kilograms of rare earth permanent magnets, of which ~33% is contained rare earth oxides, or about 1kg on an EV.

Lynas Corporation Limited (ASX: LYC) is an Australian integrated producer of rare earths from mine to customer. Lynas owns the Mt Weld rare earth mine which is one of the world’s highest grade rare earths mines, and the Mt Weld Concentration Plant, both located 35 km south of Laverton in Western Australia.

Lynas Corporation’s Mt Weld rare earth mine in Western Australia

Lynas Corporation’s Mt Weld rare earth mine in Western Australia

Lynas Advanced Materials Plant (LAMP)

Lynas also owns the Lynas Advanced Materials Plant (LAMP) which is an integrated manufacturing facility, separating and processing rare earths materials, located near the Port of ​Kuantan in Malaysia. The LAMP produces NdPr oxide, Ce carbonate, Ce oxide, LaCe carbonate and LaCe oxide, and SEG oxide. LAMP is now supplying rare earths products to customers in Japan, China, Vietnam, South Korea, Europe and North America. The company’s Japanese customer base continues to grow strongly and currently represents about 60% of all sales.

Lynas Corporation’s Malaysian rare earths Advanced Materials Plant (LAMP)

Rare earths are impacting us by already playing a pivotal role in greenhouse gas reduction through their unique application in automotive catalytic converters, electric vehicles, wind turbines, and energy efficient compact fluorescent light bulbs.

Many analysts see 2019 and 2020 to be the years when the investment world wakes up to the rare earths story of growing demand and constrained supply, in particular for the battery rare earths NdPr driven by demand from the EV boom.

Lynas is in a unique position of being the only rare earth miner and producer globally that operates completely outside of China. This gives them a rapidly growing demand from OEMs to secure reliable (non-political) supply of vital rare earths, essential in the new green economy. There has been some environmental challenges with their Malaysian plant that still need resolving, but overall Lynas looks to be a strong global rare earth producer with generally solid production volumes in key rare earths. In fact, Lynas is the second largest NdPr producer in the world.

Lynas Corporation Limited is headquartered in Australia; and has a market cap of A$ 1b.


Matthew Bohlsen

Editor:

Matthew Bohlsen holds a Graduate Diploma in Applied Finance and Investment (similar to CFA), and a Graduate Diploma in Financial Planning. He has 30 years ... <Read more about Matthew Bohlsen>


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Comments

  • Hannibal

    There certainly are “some environmental challenges with their Malaysian plant that still need resolving.” These “environmental challenges,” according to Lynas company auditors Ernst & Young, “indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern.” Let’s not ignore how serious these problems are and how they impact Lynas Corporation.

    March 5, 2019 - 10:25 AM

  • teahouse

    The brooding Head and Shoulders pattern on the Lynas weekly chart (ASX:LYC) summarises the point in the previous comment. The neckline sits at ca. AUD1.50 and momentum is bearish. Call it the tripwire if you like. Or the Sword of Damocles.
    Head of the pattern is at 2.96 in May ’18 and the neckline at approx. 1.65

    March 5, 2019 - 6:13 PM

  • Tracy

    yes but the stock pattern doesn’t acknowledge Amanda and team’s leadership talents….or the need for the world to secure rare earths outside of China.

    March 6, 2019 - 8:46 AM

  • Rog

    I bought Lynda’s twice and twice lost money. I will only go for a hard time if these Malaysian problems are fixed. I’m out of date with the news right now. What are the problems in Malaysia? Any court cases pending? Any protesters knocking around still? Once this is resolved it could be a ten bagger down the line, but before that I’m leery of buying again.

    March 6, 2019 - 10:53 AM

  • teahouse

    Yes Tracy, Amanda is a world class manager. But I differ with respect to the chart.
    Any chart is a summation of ALL buyer and seller actions in the presented time period.
    Behind each trade, criteria are ticked to reach a final sentiment and one of those is quality of management. It’s not in the trader’s mind all of the time, but it is there in the chart.
    As a rule of thumb, I would say the bigger the invested position and the longer it is held, the more likely it is that management qualifications have been diligently assessed.
    Fully agree re Rest of World geopolitical agenda. Imagine the global gold market if only one nation were to supply.

    March 6, 2019 - 5:14 PM

  • Hannibal

    The summation, is IMHO, share price. And it, is an absolute.

    March 6, 2019 - 11:39 PM

  • Chris

    Hasnt been a good start to 2019 for REO prices, still looking rather depressed. China has a massive oversupply and oversight issue when it comes to RE. Unfortunately the only way this will be rectified is by a huge increase in demand. The EV revolution will take time to ramp up, only in its infancy right now. Lymas can sell all the NdPr it produces yet sale price is at Chinese domestic with small premium for sales into Japan. Its all about Chinese domestic RE prices, which are a basket case

    March 11, 2019 - 5:18 PM

  • Robert Richardson

    Thank you Mathew for this analysis.
    As a LT follower and investor in Lynas for over ten years, and toured the Kuantan LAMP a few years ago, it’s been a ‘rocky ride’ for management and shareholders. The ONLY difficulty in Malaysia, where the world’s richest and least radioactive RE ore from Mt Weld in Western Australia is processed, is that Malaysia has a threshold limit for ‘radioactivity’ that is ten times lower than every other world country. In Australia and elsewhere, neither the ore nor the residues from its processing has any nitifiable radioactivity whatsoever.
    Unfortunately, despite many official independent enquiries and several legal actions that have always shown the Lynas LAMP operations to be completely safe, the new Federal Minister has recently chosen to ignore the latest Report from experts she commissioned to review LAMP safety, and has gagged them and refused to release their report in a readable form.
    But shareholders are still confident that Lynas’s major backer Japan, now heavily reliant on RE production from the LAMP, while recently also providing vitally needed bond guarantees to the new Malaysian Government, will quietly settle the latest baseless complaint from the Minister.

    March 11, 2019 - 6:31 PM

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