LYC - Lynas Rare Earths

[payshense]

Lenny, thanks for that Analysis. Made me smile and reminded me that the wait will be worthwhile in good time. I increased my holding this week. DYOR

Today should be interesting to watch, whichever way the price goes. Time for another coffee, and settle in for the opening

 

[skc]

SKC

Ree basket price:$62
Production cost:$10
Share on issue: 1.8 bill

Working on $45 kg profit and stage 1 production capacity of 11 million kg's of ree.
$45 x 11,000,000 = $495 mill profit per annum.

$495 mill / 1.8 bill share on issue = 27.5 cent profit per share.

Pick your PE ratio 8,10,12,14 some mining companies run in the 20's.

Thanks Lenny,

I have seen valuation on LYC else where that are similar to what you've outlined. While I don't use PE ratio for mining companies and I don't think that $10/kg production cost is all inclusive, but even if we make it conservative and say PE = 8x and $15/kg production cost, the valuation would still be in the ballpark of $2.50+. Then there's stage 2 upside as well.

If you and I can work out on the back of envelop valuation that's 2.5x above current price, there's no reason that other's can't see the same numbers (it is very closerly followed). The Malaysia situation is bad for the company but it doesn't warrant such a steep discount imo.

The variable that matters the most is clearly the realisable basket price. The market appears to be thinking that the additional supply from LYC / MCP and others will push the price down, and so the margin will not be as generous as we see here.

A couple of questions for you and other LYC followers:
- I understand LYC has pre-committed sales contracts lined up for much of its production. Are there information on the price? Is the price fixed or whatever the market is?
- You mentioned China will be net importer in 5 years. Can you point me to a reference?

Just a note... I guess I am trying to see if there are valid reasons for the current share price. If I can dispute those reasons than I can build an investment case. Rather than a different approach where one looks for reasons to support certain valuation, and risks confirmation bias.

 

[awg]

The Malaysia situation is bad for the company but it doesn't warrant such a steep discount imo.

The variable that matters the most is clearly the realisable basket price. The market appears to be thinking that the additional supply from LYC / MCP and others will push the price down, and so the margin will not be as generous as we see here.

A couple of questions for you and other LYC followers:
- I understand LYC has pre-committed sales contracts lined up for much of its production. Are there information on the price? Is the price fixed or whatever the market is?
- You mentioned China will be net importer in 5 years. Can you point me to a reference?

Just a note... I guess I am trying to see if there are valid reasons for the current share price. If I can dispute those reasons than I can build an investment case. Rather than a different approach where one looks for reasons to support certain valuation, and risks confirmation bias.

I think the risk discount is largely due to the Malaysia situation, although lower basket price and economic uncertainty play a part.

The company has failed to meet its timeline goals and its management has been subject to scrutiny.

If approval is granted ( could happen any day) I see $2, but every day it is delayed could drift the price down.

The company has no earnings, and the the sale agreements are not transparent on price afaic.

If the plant gets knocked on the head, or even further delayed by politics the sp will tank.

However I think business power will prevail, would be a huge knock to Malaysia credibility

holding (grimly)

sorry to not link, but reasonably credible source is US Govt Dept research on rare earth, has extensive projections, couple of years old by now, you should be able to find on google.

Dont think anyone can say for sure what China can or will do in next 5 years, other than to say, with such market dominance, you would expect they would be able to exert the most control over all aspects of the industry

 

[lenny]

A couple of questions for you and other LYC followers:
- I understand LYC has pre-committed sales contracts lined up for much of its production. Are there information on the price? Is the price fixed or whatever the market is?
- You mentioned China will be net importer in 5 years. Can you point me to a reference?

Stage 1 contracts are fully sold, information on the sales contracts are not disclosed for obvious reasons but are believed to be at a priemium to the spot price price because Lynas will be supplying the highest quality on the market.

"The pricing structure of the contract is related to the market price; however it includes a minimum floor price, without a maximum ceiling price, for the product sales over the term of the contract".

As for China becoming a net importer in 5 years, no i don't have a reference but if you do some research you will find :
Chinas production plants are using ancient technology and are operating below worlds best practice in regards to safety and the effect it is having on the environment and production is being decreased and this trend is set to continue, also China has put export taxs on ree's to conserve their stocks for their on use on new green technology such ipads,iphones,flat screen tv's,hybrid cars,wind turbines,military uses ect ect ect.

The worlds need for ree's is only growing.

 

[StumpyPhantom]

This question to LYC observers is probably laziness on my part.

What is Plan B if the Malaysia Solution goes the same way as the Gillard/Bowen deal and they put a stop to it?

I saw a report on SBS tonight. That looks like huge capex involved, so starting again somewhere doesn't sound great. The report suggested the dispute was over the waste disposal issue, given some radioactivity.

Is there a Plan B whereby LYC simply alters the waste disposal part of the proposal (or the Malaysia Government sets those conditions)?

In other words, if the SP is going to tank, what is the level of the downside risk?

 

[ROE]

A couple of questions for you and other LYC followers:
- I understand LYC has pre-committed sales contracts lined up for much of its production. Are there information on the price? Is the price fixed or whatever the market is?
- You mentioned China will be net importer in 5 years. Can you point me to a reference?

Market price on the day of the delivery plus shipping cost
Doesn't really matter if China is a net importer as the world is big enough for all Lynas product
and they need a bit more.

Rare earth demand can only increase from here I don't see a slow in demand for many years yet.

Advance economy required rare earth as China, Asia becomes more advance after they use iron ore for their infrastructure they need Rare earth pretty much like Japan now ...

Japan big consumer of iron ore in 1970s now a big consumer of rare earth

 

[ROE]

This question to LYC observers is probably laziness on my part.

What is Plan B if the Malaysia Solution goes the same way as the Gillard/Bowen deal and they put a stop to it?

I saw a report on SBS tonight. That looks like huge capex involved, so starting again somewhere doesn't sound great. The report suggested the dispute was over the waste disposal issue, given some radioactivity.

Is there a Plan B whereby LYC simply alters the waste disposal part of the proposal (or the Malaysia Government sets those conditions)?

In other words, if the SP is going to tank, what is the level of the downside risk?

Plan B kissed Malaysia good bye and start dismantle stuff and build the plant here
by then we are in a recession and need some job created

Some broker work out a few months ago worse case scenario that what would happen
and it be another few years delay and Lynas would be worth around 65c.

if no Plan B ...could see price double from here else take a 40% hair cut and cut your loss
if you want out...

 

[verce]

As we wait for a potential announcement on the appeal this week, here's an interesting article to tide you over:

http://www.theborneopost.com/2012/06/10/malaysia-going-for-green-vehicles/
_______________________________________________________________________________________________

"Malaysia has announced plans to boost its auto*motive sector through the production of electric cars, hoping to both develop a lucra*tive export trade while actively combating carbon emissions at home."

"government planning to announce a major policy shift that will promote the production and domestic use of electric vehicles."

"This growth would be un*derpinned by a higher level of foreign direct investment and government efforts to encourage original equipment manufacturers (OEMs) to set up operations in Malaysia."

“Meeting vehicle standards for energy-efficient vehicles in Malaysia means bringing new technologies into the country”

"If Malaysia is to achieve its ambitious target of cutting emissions by 40 per cent, it will need to move quickly to generate industry interest and acceptance of the new product among the public."
_______________________________________________________________________________________________

[Currently holding. DYOR]

 

[blackjack]

As we wait for a potential announcement on the appeal this week, here's an interesting article to tide you over:

http://www.theborneopost.com/2012/06/10/malaysia-going-for-green-vehicles/
_______________________________________________________________________________________________

"Malaysia has announced plans to boost its auto*motive sector through the production of electric cars, hoping to both develop a lucra*tive export trade while actively combating carbon emissions at home."

"government planning to announce a major policy shift that will promote the production and domestic use of electric vehicles."

"This growth would be un*derpinned by a higher level of foreign direct investment and government efforts to encourage original equipment manufacturers (OEMs) to set up operations in Malaysia."

“Meeting vehicle standards for energy-efficient vehicles in Malaysia means bringing new technologies into the country”

"If Malaysia is to achieve its ambitious target of cutting emissions by 40 per cent, it will need to move quickly to generate industry interest and acceptance of the new product among the public."
_______________________________________________________________________________________________

[Currently holding. DYOR]

Lynas losing money everyday due to the TOL not being issued
the PSC will file its report to the parliament on the 12th June 2012
the parliament will debate this on the 19th June 2012 but dont hold your breath as the Minister has said that he would make a decision on the TOL a week ago. He has not!
Malaysia's grandstanding is achieving nothing, in fact other large Co's thinking of moving to Malaysia's tech zone maybe thinking second thoughts as Lynas although completed all requirements is have a tough time getting the 3 licenses to get the LAMP going.

Some concentrate is needed to do the pre commissioning phase and this requires a license to import from Australia
This has not been issued and so further delays.

I expect the SP to retreat again as if you look at the charts it starts the week strong then retreats as no word from the Malay Government. So someones making short rides up and down in a week.

This is rubber time in Malaysia.

All things ready to go and someone has their foot on the brake.

 

[Julia1979]

All things ready to go and someone has their foot on the brake.

Wasn't it you saying, the protesters were a small group of ignorant idiots? Now it is clear and can't be ignored any more: they are a nationwide movement. Told you over a year ago why they have their feet on the brakes. They are afraid not being reelected. Giving out a TOL before the elections would most likely be political suicide too.
Even if the LAMP would be given a TOL after the elections, people in Malaysia would never accept such a plant like no people in the western world would accept that in the middle of a highly populated area.

The initial mistake was to pick Kuantan in the first place. It was driven by greed and ignorance. Another mistake was to finish the LAMP instead of finding a safer place. Now Lynas has to pay for these mistakes.
They should move the LAMP, maybe somewhere on the island of Borneo. I'm sure the government will be able to provide something adequate and pay for the expenses. Unfortunately for LYC shareholders they will not pay for the delays. I'm afraid that "first movers" will be others.

regards
Julia

neither long or short atm

 

[PinguPingu]

...he protesters were a small group of ignorant idiots? Now it is clear and can't be ignored any more: they are a nationwide movement....

It is a handful of people, the appeal was made by 3 residents. The small SMSL group just joined the larger opposition protest because they could.

Anyway, according to this Chinese/Malaysian news agency the appeal was dismissed: http://www.merdekareview.com/news.php?n=25256

Google Translated:

Kuantan residents appeal was dismissed by the Minister
Ministry of Science by conditions to Linus

[Magazine has Xue Fei Compilation] science, technology and Innovation (MOSTI) dismissed the appeal against the Lynas rare earth plant temporary operating license, except set the additional two conditions, that is, to Linus rare earth plant mentioned Kuantan residents to ensure the waste storage tank does not leak radioactive waste, and offered to control dust to be distributed to the emergency plan in the air and the environment. Save Malaysia, the termination of Linus "(SMSL) The Chairman Chen Wende told the independent news online, the organization received the Minister of the Ministry of Science, Technology and Innovation (MOSTI) Mai Ximu Maximus, Ongkili letter to inform the residents of three Kuantan the outcome of the appeal. The letter said that the residents of the requests and evidence submitted does not enable the Department to withdraw the temporary operating license issued to the Lynas rare earth plant. However, the Minister in the letter that, under the Atomic Energy Licensing Act 1984 (Atomic Energy Licencing Act, 1984) empowers the Minister's powers, the additional two conditions attached to the Lynas rare earth plant, they complied with these two conditions will issue a temporary operating license to Linus.

 

[lenny]

Trading halt ?

 

[Julia1979]

Trading halt ?

no, that was ARU old man

 

[lenny]

no, that was ARU old man

Old man lol?

Your 33 and your calling me old lol?

 

[herzy]

If the TOL has been approved (or the appeal rejected) shouldn't we expect quite the bounce come monday?

 

[Julia1979]

It is a handful of people, the appeal was made by 3 residents. The small SMSL group just joined the larger opposition protest because they could.

Anyway, according to this Chinese/Malaysian news agency the appeal was dismissed: http://www.merdekareview.com/news.php?n=25256

Google Translated:

PinguPingu still having this reality problem? :1zhelp:
Hope it doesn't become too expensive 4U.

According to news sources we can read there are two new conditions for Lynas.
"controlling dust" and "immobilzing waste"

http://www.theaustralian.com.au/business/mining-energy/malaysia-rules-on-lynas-mine/story-e6frg9df-1226397017374

This can take some time and fits in my picture. Let's hope that the elections will be in 2012.

regards
Julia

 

[Julia1979]

Old man lol?

Your 33 and your calling me old lol?

Oh sorry, have you become younger during the last couple of years?

 

[PinguPingu]

PinguPingu still having this reality problem? :1zhelp:
Hope it doesn't become too expensive 4U.

Haha, reality problem? Not at all! I trade in and out of Lynas often.

According to news sources we can read...

Indeed, past the first few lines would be great

"controlling dust" and "immobilzing waste"

That Lynas already has the answers for, which is handy

http://www.reuters.com/article/2012/06/15/malaysia-lynas-idUSL3E8HF33720120615?type=companyNews

 

[verce]

Haha, reality problem? Not at all! I trade in and out of Lynas often.



Indeed, past the first few lines would be great



That Lynas already has the answers for, which is handy

http://www.reuters.com/article/2012/06/15/malaysia-lynas-idUSL3E8HF33720120615?type=companyNews

In a press release, Minister of Science, Technology and Innovation Datuk Seri Dr Maximus Ongkili said one of the new conditions was that Lynas must submit a plan to immobilise radioactive elements in the residue that is to be disposed.

“Lynas must submit to the board a method to immobilise radioactive elements in the residue to be disposed in the event excessive residue is stored in the Residue Storage Facility (RSF). The method is to trap radioactive elements from being released into the environment,” the statement read.

The immobilisation method will be approved by AESB and would be made part of the licence conditions, the statement added.

The other condition is that Lynas must submit an “Emergency Response Plan” to control release of dust from the residue into the environment.

“The Emergency Response Plan is necessary in the event the water sprinkler system fails and it should include a contingency measure to provide an alternative water source on standby at all times.”

Seems like contingency plans that Lynas have already prepared and nothing so onerous that it would be a cause for further delay.

 

[ROE]

It always darkest before dawn

I like stocks that has reasonable balance sheet, potential but uncertainty and fear drive it to record low.

Buffett would say: "You pay a high price for a cheery consensus."