heading to $1 or below, page-67

During times like these the need for objectivity is paramount. I'm trying my hardest not to get swept up in all the negative sentiment.

It is true that the share price has been collapsing, and that a couple of months back we couldn't have imagined it dipping below $1.10. And sure, those who fervently argued that LYC was overvalued (don't need to name them) might now look like they were actually on to something. But is that true?

The last time LYC's share price was around $1.10 was back in September 2010. What has happened since then?

+ Mt Weld average basket price 5 Oct 2010: $51.03 VS 19 Sep 2011: 157.37.

+ China's RE export quota remains severely restricted
2009: 48,155tpa
2010: 30,259tpa (-40%)
2011: 30,184tpa (which now includes ferrous alloys >10% RE by weight)

+ Demand shows no sign of significant slow down

+ Mt Weld Concentration Plant still under construction VS has been completed, and commissioning and ramp up progressing well.

+ LAMP much closer to completion, with construction continuing, and EPCC awarded for Phase II expansion.

+ 4 supply contracts (Rhodia + 3 others) and 2 LOIs signed as at Sep 2010, VS 8 supply contracts (Rhodia, Sojitz, BASF) and 1 LOI signed with customers.

+ LOI signed with Siemens to form RE magnet J/V

+ Confirmation by IAEA and Govt authorities regarding the safety of LAMP

+ Further encouraging drilling results from Mt Weld may lead to increase in resource

+ Phase II expansion fully funded

+ $125m 18mo working capital facility executed

+ China is following through with its quota restrictions by shutting down RE mines, and nationalising others.

+ Huge resources of REE found...under the ocean

- LAMP issue, may cause potential delay, eroding first mover advantage

- World has realised the difficulty political leaders in the US and EU have in trying to resolve debt problems.

- JPM downgraded Molycorp to "hold" (it seems like they agree with us that MCP is overvalued)

+ Morgan Stanley popped a "buy" on MCP after it fell 47% from its 52wk high (LYC is currently down 57% from its 52wk high)

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From a fundamentals point of view, it sure doesn't look like we're back to where we were before all of this happened. We've derisked a lot and achieved a lot since 2010. All thsi stuff has to account for something right? Sure, global sentiment was probably more rosy back in 2010, but that doesn't say anything about the quality of this company.

Looking at the share price movements today and yesterday, I doubt that this drop is about anything more than the MCP downgrade and further economic worries out of US and EU (and maybe also some short speculative trading). In other words, sentiment.

The rare earths market isn't one currently in equilibrium, where a slow down in economic growth will cause an oversupply. No, the market for certain REEs are in a situation of supply shortage. The issue of supply risk for such strategic metals remains central to the entire western world's hi-tech ambitions. I don't think the market will be comfortable with China monopolising this market for a long time.

Neither do I think there's specific news about LYC which is being "insider traded" into the stock price. All REE firms fell quite a bit today:

ALK -14.29%
LYC -13.67%
NTU -12.73%
PEK -11.69%
ARU -5.43%

Now here's the hard part. When sentiment is gripping the market, fundamentals go out the door. LYC might continue falling, might even break below $1. But if it does I will still think that LYC is a good company. Those who can afford to be patient, good luck!