Lynas headed for record-breaking quarter, says analyst
Last October Michael Evans of the recently formed Sydney brokerage Curran & Co sent out a note on rare earths miner Lynas Corp (ASX: LYC | OTCQX: LYSDY) headed “Lynas Corporation: A rare opportunity” With the price of stock at that time sitting at A$0.034, Evans put a 12-month price target on the company of $A0.10.
Today (Tuesday) in Sydney the stock is trading at $A0.065. And Evans has a new report out, this time headed “Lynas Corporation: Primed for a record-breaking June quarter”. Now he has hiked his 12-month price target to $A0.20.
First, the October 2015 report: it told clients that, with Lynas, there was then a potential upside of 194%. Michael Evans said Lynas’ rare earth production chain had almost entirely been de-risked from a technical perspective as the company continued to increase production from the Lynas Advanced Materials Plant (LAMP) in Malaysia.
Lynas has been getting some good publicity of late. The Australian, the Sydney-based national daily, recently ran a report headed “Amanda Lacaze puts struggling Lynas back on track”, which charted the hard work that has gone into cutting costs and weathering the collapse in rare earth prices. It’s hard to fight the market trend, as Lacaze observed in the newspaper article, noting that “if the market price of NdPr was where it was 12 months ago we would be throwing off millions of dollars of free cash each month”.
But if analyst Evans is right in his latest report, things are looking up at last.
In the present June quarter Curran & Co estimates higher neodymium-praseodymium sales will be the primary driver of a 10% increase in the average realized price, while a 44% increase in production will reduce unit costs by 28%.
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The note says the expectation now is that there will be a free cash flow in the quarter ending June 30 of A$6.7 million.
Looking ahead, Evans is optimistic: with minor forecast price increases in the average REE price achieved, and lower until costs through economies of scale, he expects margins to improve in the short term. For the December quarter he is estimating free cash flow (in U.S. dollars) of $13.5 million, or an annualised $54 million.
March quarter production of total rare earth production of 2,546 tonnes was lower than in the preceding three months but met guidance as the company completed commissioning the final production chain.
Curran & Co is predicting, for the June quarter, NdPr production of 1,100 tonnes and total REE output of 3,667 tonnes, which would be 16% up on the three months to December 31, 2015, but a 44% gain on the constrained March quarter.
Evans says he is expecting a 28% fall in all-in cash producing costs to $10.30 a kilogram (it was an estimated $14.40 in the March quarter).
The estimated prices received for the June quarter are:
- NdPr oxide $35.00/kg
- Cerium oxide $1.53/kg
- Lanthanum oxide $1.73/kg
- Lynas overall realised price $11.70/kg
In the October report Evans outlined reasons for prices being supported at the then levels:
- Lynas’ customers (outside China) were willing to pay a premium for security of supply from a non-China producer.
- Lynas’ ability to leverage its existing production into higher quality products
- Then current prices were in line with historical pre-boom prices once reasonable escalation was taken into account.
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