Lynas gaining market traction with its rare earths story
For a moment there, there was a flash of memories of 2011 when rare earth announcements would spark a big run on a stock. That happened this week in Australia when Lynas Corp (ASX: LYC | OTC: LYSDY) announced it was exceeding production targets and earning interest reductions.
On Tuesday, the day before the announcement, 2.7 million shares went through the Australian Securities Exchange — a normal sort of day in the present market, with the stock closing at A$0.058. But then came the company’s announcement on Wednesday and 40.66 million shares traded, the price finishing the day at A$0.068. (They retreated slightly Thursday but only to A$0.064.)
As I will outline below, until early in 2015 the usual knee-jerk reaction to a Lynas announcement was to sell off the stock; since then, if there have been any sudden movements, they have been upwards — which perhaps says something positive about the change in the market’s perception of Lynas (and possibly of rare earths — if so, it’s about time).
In brief, this week’s announcement was good on two fronts:
- The company’s production of neodymium-praseodymium (Nd/Pr) – the key magnet rare earth elements – for the 12 months to June 30 exceeded the target of 3,840 tonnes. As Lynas pointed out, this is the second consecutive six-month period in which it has exceeded its Nd/Pr target. This means that interest on the loan facility under the agreement with partners Japan Australian Rare Earths (JARE) will be reduced by 0.5%
- Lynas last month repaid another $5.74 million; as a result of its recent repayments, the JARE senior loan facility has been reduced by a further 0.3%.
We’ll learn more in the quarterly report due out later this month, but clearly this week’s news was enough to generate some market excitement.
Clearly, too the market is realising that importance of Lynas being the only non-China source of Nd/Pr for magnets. The latest market forecasts suggest that global permanent magnet market is expected to grow from nearly $13.4 billion in 2015 to $20 billion by 2020, at a compound annual growth rate (CAGR) of 8.4%. The neodymium magnet market has been forecast to grow from $7.0 billion in 2015 to $10.7 billion by 2020 with a CAGR of 9.0%
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Just look at how sentiment has turned around.
Only as recently as the first half of 2015 saw largely negative announcements regarding Lynas. Typical examples of headlines were “Tough six months for Lynas” and “Another tough quarter for Lynas”.
Then in September 2015 Sydney-based Foster Stockbroking put out a very positive note on Lynas, suggesting that its was optimistic for several reasons:
- The realization that the company was not going into bankruptcy.
- Neodymium-praseodymium (NdPr) price potential once Molycorp’s inventories were exhausted sometime in the December quarter;
- Higher rare earth prices as current industry losses are unlikely to be sustainable;
- Continuing positive operating news flow as Lynas ramps to 20,000 tonnes a year by the end of 2016.
One day in the second half 2015 saw the company’s price jump by 13.2% after it reported positive cash flow. There was also a day when volume increased by 280%, an event that provoked a query from the Australian Securities Exchange.
We have also seen a report this year from another Sydney broker, Curran & Co, taking a very positive view of Lynas.
So there seems to be a positive trend developing.
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