Lynas gains strength in Malaysia after legal wins and signs of growing Demand
Rare Earths & Critical Minerals Week in Review: It was an exciting week in the rare earths sector, even if the Rare Earths and Critical Minerals index average of -0.28% might not at first suggest it. Shares of Lynas Corp (ASX: LYC | OTCQX: LYSDY) rose modestly (2.06% and 6.25% respectively) but the Company itself announced that it has complete legal authority to operate its rare earths processing facility (the Lynas Advanced Material Plant – LAMP) in Gebeng as there no longer any legal obstacles that could warrant any further temporary suspensions of its operating license. The Malaysian Federal Court upheld all earlier decisions (in Lynas’s favor) issued by the lower Courts, preventing three Kuantan residents, backed by the Save Malaysia Stop Lynas ‘NGO, from appealing against a previous high court decision to allow Lynas to process rare earths at LAMP. Meanwhile, the Malaysian Court of Appeal also confirmed the Kuantan High Court’s decision to include Lynas as a party in the next judicial review proceedings at the High Court, which will be heard some time during 2013.
Beyond the legal knots, Lynas has managed to produce the full range of its planned Rare Earths products as LAMP proceeds toward reaching its Phase 1 annual production rate of 11,000 tons REO target by the end of next June, or the end of the second quarter. Plans to expand capacity are also underway in order to reach the full target of 22,000 tons/year. Lynas’s new CEO, Eric Noyrez is confident that Lynas will still be able to improve cash flow, despite the drop in the ‘basket prices’ for a number of rare earths. It should help that a strong growth in demand is expected in the medium term, especially as far as permanent magnet and oil refining industries are concerned; indeed, cerium is used in oil refining as a fluid catalytic cracking catalyst. Lynas believes that the demand for rare earth will rise faster than the future economic growth; should this prove to be true, a gradual stabilization of rare earths should occur.
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Lynas also announced its first Quarter results for 2013 and despite some expected losses, the news was better than expected. While Lynas showed a negative operating cash flow of AUD 15.8 million, it has AUD 172 million in cash reserves, originating from a capital increase in 2012. The CEO has accounted for the lower rare earths process and the biggest risk remains the Malaysian elections scheduled for next Sunday, May 5. While many investors and industry observers have been concerned, the current indications are that the current government is likely to be re-confirmed, which keeps the risks low. Apart from opinion polls, there is a renewed foreign investment confidence in Malaysia. The government has expanded social welfare programs while also improving business regulations. To this effect, last week BASF, a large German chemicals company, consolidated a joint venture with Malaysia’s Petronas Chemicals investing in a new USD$ 500 million food additive facility in Kuantan – not far from where the Lynas LAMP facility is located.
A rebound in commodity prices at the Australian Stock Exchange translated to some lift for some of the rare earths companies listed there. Peak Resources Limited (ASX: PEK) rose 11.11%. The Perth based miner is focusing on developing its Ngualla Rare Earth Project in southern Tanzania, one of the largest and highest grade known REE deposits anywhere. Last week Peak announced that it has entered into a non-binding Memorandum of Understanding (MoU) to fully fund the Ngualla project. Peak did not disclose the investors’ identity and the funding is conditional upon the completion of due diligence; nevertheless, the agreement should be formalized before the end of next May. Arafura Resources (ASX: ARU), one of Australia’s fastest-growing rare earths developers having achieved exploration processes and fruitful partnerships to ensure long term growth, announced at the Technology Metals Summit (#TMS2013) in Toronto, that it will halve its projected CAPEX cost from about AUD$ 2 billion to AUD$ 1 billion. This is a significant achievement particularly in view of the fact that Australian infrastructure costs have increased substantially in the past few years – especially energy and construction.
In Canada, Matamec Explorations Inc. (‘Matamec’, TSXV: MAT | OTCQX: MHREF) rose 13.79%. Matamec announced the discovery of new REE zones, bringing the total number on the property to 12. The property includes HREE’s and some niobium. Dr. Tony Mariano, who was honored with a lifetime achievement award at #TMS2013, and his team are studying the mineralogy. It should be noted that Matamec expects to finalize a partnership agreement with Toyotsu Rare Earth Canada (part of Toyota Tsusho Corp) by the end of June.
In April, Matamec confirmed receipt of USD$ 774,000 CDN from its Japanese partner to help it achieve the goal of supplying Toyota with heavy rare earths (“HREE”) for the production and marketing of hybrid and electric vehicles from its Kipawa project. Meanwhile, shares of Pele Mountain Resources (‘Pele’, TSXV: GEM) rose 25%. Pele announced that it preparing an updated NI 43-101 mineral resource estimate for the Eco Ridge Mine rare earth and uranium project in Elliot Lake, Ontario. Pele has already issued a favorable preliminary economic assessment for Eco Ridge and the updated estimate – expected before the end of this quarter – will include the higher grade areas that were recently discovered in a northwestern area of the current resource.