lyc way undervalued, page-27

Hi Soho, I'm happy to have a shot at it although I've posted much the same before: all figures are ballpark of course.

First, let's assume for the moment we're in phase 2 production (22 ktpa = 22 mill kg), the basket price is the current one ($50/kg), and the cost of production is $15/kg (Lynas estimates $10-15). This should be the case by Q4 2013.

Let's add in $220m p/a for costs of tolling to final products, admin, royalties and NC's cognac. This adds $10/kg to the production cost and is very pessimistic IMO.

So the profit margin is $50 -15-10 = $25/kg.
That's $550m profit pa overall.
At a p/e ratio of 10 it's a $5.5 bn company, divide by 1.8 bn shares gives a $3.00 value.

OK now let's look at the downside. Basket price: Lanthanum, Cerium and Samarium are likely to go lower. They comprise 25% of the basket price while the rest are CREE and likely to be stable or add value. The price bubble has well and truly burst and politics suggests some upside or at least a levelling off.
I'm thinking a $40 basket price (with the cost structure I've built in) is pretty much worst case for a profit margin of $15/kg and a fair price (same argument as above) of $1.80.

Now let's assume a 10% chance of Lynas being worth nothing a year from now (TOL killed off, Mt Weld & LAMP dematerialise) and a 10% premium for waiting 1 year for all of this to happen. (Half of it should happen this year but whatever...)

That gives (IMO) a right now, very pessemistic share value in the $1.40 region.

Using the $3.00 next year value above with the same discounts for risk & delay gives around $2.40 share value today.

Of course that analysis ignores future upside in Duncan, Siemans JY, NC's beatitude and similar.

So there you go: fair value right now is around $1.40(pessimistic) to $2.40 (neutral).
Average those and you get a NPV of about $1.90 without any 'blue sky' bonus.

Happy to go through the details Soho.