Lynas Corp survives the price bust
Australian rare-earths miner Lynas has emerged from the industry’s boom and bust as the lone survivor, and as chief executive Amanda Lacaze begins to market the firm to investors.
A resurgent Lynas has seen its stock rally from a low point of 3.3c earlier this year to 11.5c at the close of trade on Monday (closing at 11c yesterday), taking the ASX200 company’s market capitalisation from $115 million to more than $400m in less than three months.
“It’s a recovery from near death,” Foster Stockbroking analyst Mike Harrowell told The Australian yesterday.
“The current managing director (Ms Lacaze) has bitten the bullet very hard. Lynas is the only new rare-earth producer to emerge from the boom.”
Ms Lacaze told The Australian the 2015 financial year was one of focusing on “getting the basics right”. “I didn’t spend a lot of time out in the equity market talking to investors last year,” Ms Lacaze said.
“Lynas’s history has been long and chequered. Fixing the way we present ourselves to the market won’t happen overnight.” She added that “success in the valuation of the company follows success in business”.
The prices for rare earths, a term for 15 different minerals that are not all-together rare but are difficult to extract, reached a peak in 2011 during a speculative boom before declining sharply as the global economy slowed.
Lynas’s shares plunged from a high of $2.55 in April 2011 to a low of about 3c, with the original 92 million shares on issue having been diluted to around 3.5 billion in order to survive as a company.
“At 3c a share, the market was absolutely saying it was unsure if the company was going to survive,” Mr Harrowell said.
“At the current level it’s saying it’s going to live but we’re not sure what the earnings are going to be,” he added. The stock tops Ord Minnett’s best ASX 200 performers of the past 90 days, with a move of 251 per cent. The surge came after the company restructured its debt facilities and logged three straight quarters of positive free cashflow -- a first in the history of Lynas -- and saw its only non-Chinese competitor, Molycorp, crash out of the industry into bankruptcy.
Ms Lacaze said the market has been late to factor into the stock the improvements the company has made over the past year. “People recognised that all in a bit of a rush,” she said. “We’ve been progressively building a more resilient and robust business over the past 15 months. None of that has been factored into our share price until now.”
Patersons analyst Rob Brierley said that despite the impressive recent share price jump, he foresaw further upside on the expectation of a recovery in rare-earth prices, thanks to a decline in illegal mining in southern China and increased demand. About 60 per cent of Chinese rare-earth production is loss-making. Demand for their use in hi-tech products, such as magnets for wind turbines and hybrid electric cars, is beginning to drive prices higher.
The projected shortfall in the supply of Lynas’s main product, neodymium-praseodymium oxide (NdPr), is a big cause for the company’s shiny outlook. NdPr, which accounts for about 75 per cent of the group’s earnings, is trading at $US41 a kilogram, up from $US36 in September.
Dudley Kingsnorth, executive director of the Industrial Minerals Company of Australia, is forecasting much stronger growth in demand for NdPr than other rare earths, which Mr Harrowell said was likely to keep the market undersupplied in NdPr, helping to put a floor under the price.
A small increase in the price of the rare earth would result in easy cashflow for the company, which would allow it to pay down its $430m debt pile in a matter of years.
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