EDITOR: | June 7th, 2016 | 14 Comments

Lynas headed for record-breaking quarter, says analyst

| June 07, 2016 | 14 Comments
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Lynas Corp CEO Amanda LacazeLast 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%.

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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Comments

  • Don Lay

    Robin:
    Interesting. Can you provide this report?
    Thanks, Don.

    June 7, 2016 - 2:08 PM

  • Kitjean

    Certainly good news for us long suffering investors. Unfortunately, doubtful the SP will ever remotely reach the level the stock was traded at 5 years ago ($1.60) when I believed all the hype the “experts” were lavishing on this no-brainer investment. It was a no-brainer, alright!

    June 7, 2016 - 2:47 PM

  • Don Johnson

    if Ucore are successful with their MRT:-

    http://www.kitco.com/news/2016-06-07/Ucore-Separates-HREE-and-LREE-Classes-at-99-Purity-via-SuperLig-R-One-Pilot-Plant.html

    then the LAMP will be a high cost method of production

    With this news from Ucore I would not like to be holding Lynas shares right now.

    June 8, 2016 - 1:24 AM

  • Jezza

    @don Johnson: i suppose that all depends if it is easy and economical to separate the light and heavy REs from EACH OTHER. I would assume it is pretty easy to separate hree and lree from each other or from the ore body.

    June 8, 2016 - 2:53 AM

  • Lok Chong

    Gues who has made big bucks from Lynas – from concept and the long road to reality.? The Malaysian – politicians, their minders and balls carriers.
    Life is too short to hang your hope on spin doctors. Accept and salvage whatever remain. Lynas will forever be a price taker and highly indebted.

    June 8, 2016 - 5:20 AM

  • investor

    Lok Chong you are a smart man. Not sure about politician comment but the rest is spot on.
    Eventually the question will be asked, why persist with it?

    Anyway many different spin doctors around, one may have a right spin to take it forward?

    June 8, 2016 - 7:21 AM

  • Aat Oskam

    @Don Johnson: until now I have found no producing costs / kg separated ree’s for the Ucore Superlig method.You do have those costs, according to your reply, please share those costs?

    June 8, 2016 - 7:21 AM

  • JJBeswick

    Don,
    assuming for the moment that the MRT tech is a technological leap forward there are still a few things to keep in mind.
    1. As Aat suggests there’s been no reliable costing provided for the process, ever. They claim it’s viable, quoting platinum group recovery (very valuable output) and removal of bismuth impurities in copper mining (low volume removal of high cost impurity). It’s clear that the beads are expensive and will preseumably require periodic replacement. Will that be viable separating Ce from Nd are current prices?? I doubt it but happy to be corrected by solid data on this.
    2. Separating the REE from the leachate is just one stage of the ore -> REO process and in most cases not the most costly. A readily beneficiated, high quality deposit is at least as relevant to the viability of an operation.
    3. If MRT is good it’s entirely wasted on Ucore’s trivial size and low grade deposit. Instead they seem to be positioning themselves as purveyors of technology which is probably wise.

    June 8, 2016 - 11:26 AM

  • JB

    How is the 28% fall in all-in cash producing costs expected to be realized I wonder? Rev of $11.7/kg and costs of $14.4/kg …hmmm

    June 9, 2016 - 12:46 PM

  • JJBeswick

    JB maybe it’s easier to understand if you read the company’s last quarterly where it’s all explained in some detail.
    Starting up the last of the SX trains costs money (filling up the tanks with chemicals) and production from the other 3 SX (seeding train 4 with RE). While SX4 sabilises its product won’t be up to spec.
    All this happened in the quarter from which you cherry picked the $14.40 COP figure.
    Also, once running stably the substantial fixed costs in the COP will be reduced by 25% as they’re spread across 4 trains not 3.

    June 10, 2016 - 9:34 PM

  • investor

    Once running stably……three beautiful words. Will it ever run stably for longer than 3 or 4 months? I would love that to be the case!

    June 12, 2016 - 7:05 PM

    • JohnB

      Mt Weld WA, LAMP concentrate supply, is wonderfully stable, LAMP stability is very suspect. Perhaps a concentrate sale to a third party would improve cash flow

      January 23, 2017 - 6:16 PM

  • Robert Richardson

    That Curran export was pretty well-based, it would seem from today’s announcement:

    Lynas Corporation (ASX:LYC, OTC:LYSDY) is pleased to announce that the interest rate under the JARE senior loan facility has reduced from 6.5% per annum to 5.7% per annum as a result of the following:
    1. Exceeding Production Targets: Lynas’ NdPr production for the 12 months ended 30 June 2016 exceeded the target of 3,840 tonnes. During that 12 month period, Lynas’ NdPr production was 3,911 tonnes. This is the second consecutive 6 month period in which Lynas has exceeded the NdPr production target for the JARE senior loan facility.
    As detailed in Lynas’ ASX announcement dated 17 August 2015, the JARE senior loan facility specifies NdPr production targets for each 6 month period from 1 July 2015 to 31 December 2017. As a result of Lynas exceeding the second NdPr production target, the interest rate under the JARE senior loan facility has reduced by 0.5% per annum.
    2. Making Principal Repayments: As detailed in Lynas’ Quarterly Report released on 29 April 2016 and in Lynas’ ASX announcement dated 30 May 2016, Lynas repaid in May 2016 the principal amount of US$ 2 million that was due to be paid to JARE by 30 June 2016. In addition, during June, Lynas repaid from Lynas’ operating cash flow into the loan facility restricted interest bank accounts the total amount of US$5.74 million (i.e. A$ 8 million at the time of draw down in April) that was used for SX5 Train 4 start-up costs. As a result of these repayments, the interest rate under the JARE senior loan facility has reduced by a further 0.3% per annum.
    Further details will be provided in Lynas’ quarterly report later this month.”

    July 5, 2016 - 8:36 PM

  • JJ Beswick

    The latest numbers look very good to me.
    It appears they had at least US$7.7 = A$10.3 free cash flow given one of those payments reported by Robert was voluntary.
    Based on Evans’ margin of A$1.40/kg across 3667t production you’d expect the free cash to be about A$5.1 which I thought was very optimistic until the latest announcement.
    Seems Lynas can now sell at a healthy margin while most Chinese producers are bleeding cash.

    July 6, 2016 - 2:46 AM

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