LYC - Lynas Rare Earths

[The Muffin Man]

With a controlling stake going possibly going to the Chinese, does anyone see any Government type foreign investment hurdles that may not get cleared?

I bought in today at 40c to go for a ride and see what happens! I couldn't bring myself to buy in earlier, as I only came across this company after the initial funding fell through and wanted to see if new funding was available before buying in. I missed the initial jump this morning, but didn't want to risk the company floundering if no funding could be found. Interesting times ahead I'm sure.

 

[White_Knight]

Another blow to Australian sovereignty...

 

[White_Knight]

Also, you would think they cant trade much higher in the short term given the massive equity dilution about to take place?

 

[nioka]

Also, you would think they cant trade much higher in the short term given the massive equity dilution about to take place?

I don't agree with you there. Even with the dilution the market cap is still well below that when there was still more funding to be obtained. The possibility of FIRB not approving the deal is holding the SP down as well as sellers taking profit on stock bought during the recent low prices. I suggest a price of around 60c if all the conditions are met would be a reasonable expectation with $1 possible on the start of production for those prepared to hold.I base these predictions on the stated figures for production,cost of production and expected prices for RE.
There appears little risk associated with holding if the deal goes through. DYOR.

 

[ixalus]

Given that the deal does go through. I bought this shares in this counter over a year ago at a hefty price of 90 cents. It's been giving me sleepless nights since with it's capital problems.

I'm considering whether to average down my cost price or to use my spare cash and invest it into a gold counter RMS.

Any ideas?

 

[johannlo]

I concur with Nioka.

I had some at 10c and sold when it got above 30, being a conservative type but back in it @ 41c based on the same sentiments Nioka expressed. Hard to resist the urge to cash in a quick 8-10% profit for a few hours risk, its already hit 44c today.

 

[SBH]

Another blow to Australian sovereignty...

To Kevin Rudd, (Im sure you read this forum) ... this cant be allowed to go ahead!!

This would be a big blow to australian and any non chinese greentech for the decades ahead. To gift china a monopoly of rare earths would be incredibly short sighted and down right dangerous. Im sure the US will be hugely opposed to this deal. I hope sanity prevails (share prices arent everything people).

The whole point of LYC was to be an alternate supply to the chinese dominance so its clear the LYC board has sold out big time. Shareholders should vote this down if kevin is too gutless to do so.

 

[J.B.Nimble]

Good news for shareholders but what a tragedy. With Chinese money driving ARU and now controlling LYC, the middle kingdom has regained absolute control of the rare earth market for the forseeable future. Hmmm, I wonder how long until China takes an interest in GGG...

 

[Scorez]

Greetings Lynas holders / traders...

Indeed - way to corner the market China...

I was on LYC at 15 but not patient enough to hold with such high volume trading and the SP going no-where for a coupla months or so. The fundamentals are a no-brainer so big lesson in patience there.

**I would like to raise this issue though...

Don't we have something in this country called "THE FUTURE FUND" !!!
How many millions / billions are in this fund????

And following from that - why the freaking hell aren't we INVESTING this in development of such no-brainer resource projects like this and other distressed miners here rather than exotic toxic derivatives - and letting those with greater forsight or cashola take market strategic positions.???

A final point - with future advances in goetech and Australia being such a massive continent just maybe, hopefully more world class deposits may be discovered in the future - well food for thought... development time notwithstanding.

cheers,
Scorez

 

[nioka]

I am sending Wayne Swan a message asking that he rejects the Chinese deal with LYC for a majority shareholding and restricts the deal to a maximum of 45%.

I believe it is not in the best interests of current holders, Australias interest or the interest of the world at large for the Chinese government owned company to have ,not only a majority holding in LYC, but control of the bulk of the world's supply of such an important resource.

The fact that the SP of LYC dropped on the USA pink sheets last night means that the majority sale is not a positive for shareholders also has implications.( down 18.5%)

If anyone here feels that they have the same opinion,whether they are shareholders or not, they should also message the government to register disapproval.

 

[nioka]

Greetings Lynas holders / traders...

Don't we have something in this country called "THE FUTURE FUND" !!!
How many millions / billions are in this fund????

And following from that - why the freaking hell aren't we INVESTING this in development of such no-brainer resource projects like this and other distressed miners here rather than exotic toxic derivatives - and letting those with greater forsight or cashola take market strategic positions.???

The futures fund was a con job. The futures fund is the super fund for public servants etc. As such it will be invested by the fund as they see fit and not used by the government.

Having said that I believe it would be a good investment for that fund and indeed a good investment for any super fund.

 

[The Muffin Man]

nioka, I have to disagree on a few points. Would you judge how the market has interpreted the announcement by the reaction in the US pink sheets, or by the price movement on the ASX the day of the release? The share price was up 50% on the ASX, and had been up quite some way as you yourself mentioned in the US before the small retrace last night. So judging the market sentiment on a slide of 18% in the US after such a large rise in the days before is a little rich I would think. It is still up an enormous amount when you compare the price now to what it was a week ago.

I think that you, as well as other holders, should be careful when trying to harpoon this deal. Do you really think that current shareholders would be willing to tip in the required amounts through SPP's etc to get operations up and running? You might think so, but larger shareholders may not be so willing, especially in the current environment. And while LYC had $40m in the bank, most of that was going to be used to pay out works regarding the operations that were suspended. So, the cash situation isn't all rosy, hence the $15m working capital facility that LYC negotiated within the deal. LYC would have spent a lot of time developing this deal, and if it were not to proceed, the company could find itself in a lot of trouble cash wise. A few things to consider. I think that those with a lot invested in LYC will be trying to push this through.

How is the Future Fund a con job? Wasn't it always set up to cover the future superannuation liabilities of the Government?

 

[Scorez]

The futures fund was a con job. The futures fund is the super fund for public servants etc. As such it will be invested by the fund as they see fit and not used by the government.

Having said that I believe it would be a good investment for that fund and indeed a good investment for any super fund.

Point taken, and reiterated by Muffin Man...

- - -

It just appears we have a short term vision and have dropped the ball on opportunity across the sector that should be 10 fold.

Oh that's right, the GFC - everyone caught with their pants down.

It is still a no-brainer in my opinion.

Cheers,
Scorez

 

[nioka]

nioka, I have to disagree on a few points. Would you judge how the market has interpreted the announcement by the reaction in the US pink sheets, or by the price movement on the ASX the day of the release? The share price was up 50% on the ASX, and had been up quite some way as you yourself mentioned in the US before the small retrace last night. So judging the market sentiment on a slide of 18% in the US after such a large rise in the days before is a little rich I would think. It is still up an enormous amount when you compare the price now to what it was a week ago.

I think that you, as well as other holders, should be careful when trying to harpoon this deal. Do you really think that current shareholders would be willing to tip in the required amounts through SPP's etc to get operations up and running? You might think so, but larger shareholders may not be so willing, especially in the current environment. And while LYC had $40m in the bank, most of that was going to be used to pay out works regarding the operations that were suspended. So, the cash situation isn't all rosy, hence the $15m working capital facility that LYC negotiated within the deal. LYC would have spent a lot of time developing this deal, and if it were not to proceed, the company could find itself in a lot of trouble cash wise. A few things to consider. I think that those with a lot invested in LYC will be trying to push this through.

How is the Future Fund a con job? Wasn't it always set up to cover the future superannuation liabilities of the Government?

Nobody is trying to harpoon the deal. Just trying to get a better deal, one that does not allow china to manipulate the worlds supply of rare earths. There is more at stake here than just the short term value of LYC shares. The company is not in severe financial trouble. It has just had to stop the progress on a short term basis.

I hold OZL shares and when the govt stopped the original sale to MM there were also cries of the deal being scuttled but in the end the new deal is much better than the first one. The same will happen with here. The chinese deal hard but they do bargain in the end.

LYC have a product that the world needs and must have.

With regards to the futures fund being a con. The govt sold a national asset to fund it and by calling it the futures fund the average Joe thought it was for Australias future not just for the future of a few.
I started full time work in 1947. That year the govt started a wage deduction into a pension fund saying that all australians would get a pension on reaching the retirment age. A few years later another government transferred the fund to consolidated revenue and kept the deduction as extra tax. Then another government introduced the means test. That too was a con.

 

[nioka]

News article from Australian business March 10,

http://www.theaustralian.news.com.au/business/story/0,28124,25162769-30538,00.html

CHINA has triumphed in a 15-year quest to become the "ultimate monopolist" in the supply of rare earth metals -- a dominance that industry experts say could give Beijing control over the future of consumer electronics and green technology.

Industry sources believe that with China dramatically cutting its annual rare earth export quotas, the time may be rapidly approaching when it will be impossible for any company to produce a wind turbine or hybrid electric car outside the communist country.

After a long, relentless campaign of price wars and export quota reductions, more than 95 per cent of the global supply of rare earth metals -- a group of 17 "lanthanide" elements employed in hundreds of technologies ranging from mobile phones and BlackBerrys to lasers and aviation -- is produced by China.

Although China has the resources and refinery capacity to produce enough lanthanum, terbium, neodymium and dysprosium to satisfy a global demand that is rising at 10 per cent a year, its rare earth export allocation for the whole world this year is expected to be about 38,000 tonnes -- less than the quantity required by Japan alone.

Furthermore, as the world tries to make itself more energy-efficient, China's dominant position will become more strategically critical because of the wide range of cutting-edge environmental technologies, such as wind turbines, low-energy light bulbs and hybrid cars, that depend heavily on the rare earth metals.

Jack Lifton, an expert on rare earths, said: "Deng Xiaoping's comment in 1997, where he said that China would be for rare earth metals what the Middle East was to oil, has become a very stark reality. The world has to wake up and start thinking of this group of elements as the 'technology metals' without which there will be no technology.

"China is already working out how these metals are going to give its companies a competitiveness that the rest of the world will find very difficult to match."

China's rising strength in rare earth supply and its apparent willingness to use that as "a 21st-century economic weapon" have triggered what government sources in Tokyo told The Times was an invisible tsunami of panic in Japanese industry, which in turn has called on the Government to fight its corner with Beijing.

Japan, which imports nearly 100 per cent of its rare earths from China, sees the group of elements as a probable battleground for future trade wars.

Toyota and other big carmakers are hurrying to secure alternative supplies in Vietnam and Malaysia. Mines in the US that were forced out of business by price wars may be brought back into use.

Yet many industry observers believe that Beijing may engineer a global supply crunch before any serious rival sources become available.

China's strategy, said Yoichi Sato, head of the rare earth division of Mitsui, suggested a complex game being played between Beijing and the world's rare earth consumers. The perceived idea behind China restricting its rare earth exports is two-fold.

Firstly, it gives its own hi-tech industries a chance to flourish and gain a huge competitive edge over rivals in Asia, Europe and the US -- a politically useful gambit by a Government whose legitimacy lies in the provision of jobs and economic growth.

Secondly, it may force foreign companies to move their hi-tech factories and research centres to China to circumvent quotas, a move that Japanese companies will resist for fear of losing industrial secrets.

Mr Sato also believes China will seek to use its existing monopoly status to crush any competition that emerges. Although about 42 per cent of worldwide reserves of rare earth ores lie outside China, very few places have significant refinery capacity.

Mr Sato said: "Of course many people are looking at establishing alternative refineries and sources outside China, but the investment is not necessarily a sound one because of the threat of price revenge by China. If new projects emerge, as they have recently in Malaysia and Australia, China could just drop its prices and force rivals out of business."

Prospects of developing the industry outside China have been hit by a sudden decision by investors in Lynas, the Australian group, to pull funding for a project under which a big refinery would have been built in Malaysia for operation by the end of this year. A company source said the project, which would have given companies such as Toyota and Honda a welcome diversity of supply, is unlikely now to open as scheduled.

Moreover, China's push to remain the globally dominant player appears to have intensified. In the past fortnight, a Chinese investment company acquired 25 per cent of Arafura Resources, an Australian rare earth miner and, last month, China Minmetals Rare Earth Company laid out plans to invest $US300 million ($470 million) to cement its position as the globally dominant corporate force in the field.

 

[The Muffin Man]

Regarding LYC not being in severe financial trouble, they aren't yet. But I'm pretty sure that I read in one of their announcements that of the approx $40m cash and cash equivilents they had in the bank, $30m of that would need to have been used to pay out existing contractual obligationas to do with the constuction operations. That would leave the company with $10m in the bank to effectively operate. That is not a lot of money when you consider that the company has administration expenses of $4-5m per quarter. A financing deal of some sort needs to be secured in the very near future, and a SPP or equivilent is not very attractive with a share price of 30c or below.

 

[johannlo]

Er muffinman doesn't the new Chinese deal give them more operating cash? Noika quotes 15m can't remember myself what was in the announcement.

Disclaimer: holds LYC, ethnic chinese (lol)

 

[The Muffin Man]

Er muffinman doesn't the new Chinese deal give them more operating cash? Noika quotes 15m can't remember myself what was in the announcement.

Disclaimer: holds LYC, ethnic chinese (lol)

Yes it does. I'm talking about if the deal, for whatever reason, does not proceed.

My last post was looking at LYC's cash position if the deal had not eventuated. I was pointing out that the company needed to act rather quickly to secure financing because after paying out contractual obligations, they would have only had approximately $10m in the bank.

 

[johannlo]

Fair point, thanks for your clarification.

This is a bit of a guess but even if the deal does not eventuate the cash will come around one way or another, even if SP takes a hammering in the short term (3-6 months), given the rich resource they are sitting atop of.

Or maybe its just investors superstition (this stock has been great for me trading in the past)

 

[The Muffin Man]

There are a few interesting points raised in the presentation released today;

- CNMC "share the vision of Lynas, the business model will not change." I'd like to know what safeguards are/can be put in place to ensure that the business model will not change. Currently the business model revolves around focusing on meeting the demand of Japan, Europe, and the US. Does one of the safeguards include the board being expanded to 8, with the chairman having the 'casting vote?' Curtis will remain the chairman, so I would assume he would use his vote to ensure the business model won't change. I'm unsure as to what this means to be honest, any thoughts from others would be welcomed.

- The $15m working capital facility will be available to LYC even if the deal does not go through. If the deal does not go through, the $15m will turn into a 2 year loan (page 4) I guess it's comforting to know that, if the deal doesn't eventuate, the company will have enough cash to continue for some time to come (albeit not moving forward with construction) That has laid to rest my major fear of cashflow problems.