Rare earth turnaround: why Lynas is attracting attention
Anyone surprised that a rare earth company is now the subject of speculative activity in the markets (and in a positive way)? In 2011 that prospect would not have seemed unusual. Today, it does. And a financial newspaper turning out a positive turnaround feature on that same company? Not something many investors, six or nine months ago, would have been expecting.
We’re talking about Lynas Corp (ASX:LYC | OTCQX:LYSDY) which turns out to be the great survivor of the REE crisis.
Not that InvestorIntel readers need be surprised. They have been kept in the Lynas loop. Indeed, in October I posted an item looking at what was happening to this company’s share price. That particular week the stock rose on one day by 26.3% on the back of a very encouraging quarterly report; the next day the price rose another 4.2%. As I pointed out at the time, at that time rare earth prices were continuing to recede and the industry was beset, as Lynas and others pointed out, by all the illegal rare earths being shipped by Chinese producers and that was depressing the market prices for REE.
I added back in October: “I suspect for the share price rise the reason was not so much the results for the three months to September 30 as some of the commentary in the quarterly, commentary that said the sort of things that one expects from a business that can see a way to turn around its whole story. It is not out of the woods, but there now appears a glimmer of hope”.
Today the Sydney-based Australian Financial Review has taken the story further. “Lacaze’s rare turnaround at Lynas” is the headline, going on to say that Lynas CEO Amanda Lacaze did not make it in to the paper’s 2015 outstanding business people list, but he has a chance to be in the 2016 list.
“She has successfully turned around a company that two years ago looked headed for receivership,” noted the AFR. And the newspaper is quite certain that the company is not only going to survive but might actually prosper – not an assertion you could have made a year or two back. The AFR says the test will be whether institutional investors come back on the register.
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The articles clearly attributes the key to the Lynas turnaround was when Lacaze took the reins and added a dose of reality to the operation – reality that did not justify expensive offices in Sydney and excessive operating costs.
The problem in judging just how well Lynas is doing is that very volatility now evident in the market; that rather than sober valuation rules at present. In the past 52 weeks the stock price has varied between 0.3c (Australian) and 14c. At midday Wednesday, it was sitting at 9.4c. A week ago, Lynas stock lost 15.4% in that day’s trading; on Friday it lost 16.9%. On Monday it was up 17.2%. In the first half of Wednesday trading this week, the gain was 6.8%.
While that may be partially the result of the volatility in the metals markets generally – hopes raised one day, dashed the next – the volume tells us something else.
Around the middle of today (Wednesday) a spot check revealed the buy/sell bids/offers on the Australian Securities Exchange for rare earth stocks:
- Northern Minerals (NTU) – 11 buyers, 28 sellers.
- Hastings Technology Metals (HAS) – 11 buyers, 16 sellers
- Arafura Resources (ARU) – 31 buyers, 33 sellers.
Now contrast that with Lynas: 409 buyers, 471 sellers.
A glance at the various chatrooms used by the small-time speculators confirms the feeling that the traders have seized on Lynas as one of their current playthings. At the moment, that seems to be the main obstacle to potentially long-term investors being able to get a solid assessment of the company’s market worth. That said, there is little doubt that when the price does settle, Lynas will be looking a good deal shinier than it was a year ago.
Footnote: This latest Lynas development comes within a week of Australia losing another rare earth player – but this time it is not disenchantment with rare earths themselves rather than the project did not meet earlier expectations. Spectrum Rare Earths (ASX:SPX) is disappointed by the results from its Skyfall project in the Northern Territory and believes the mineralogy is too challenging. It is wiping its hands of rare-earths and will relinquish the ground.
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