lynas presentation to analysts

Taken from here

5-Feb-13, Nick Curtis, Exec Chairman, Eric Noyrez, President COO, Luisa
Catanzaro, CFO
 Lynas held a 2 hour presentation to the analysts covering the stock
yesterday. It covered a lot of technical ground about the Mt Weld process
(mining and concentration of ore) and the LAMP process (roasting,
leaching, separation, and purification). It also covered plenty detail on
accounting standards, different treatment for capitalisation, etc. Below is a
summary of the more interesting points from the presentation and
discussion plus some additional background in response to some of the
regular questions I receive.
Mt Weld:
 Still the largest and richest Rare Earth deposit anywhere. The
concentration plant has been idled since May 2012 as it has built up more
than enough stockpiled concentrate. It has 15.2kt @35% REO, which is
about 6 months of supply for the Phase1 plant in Malaysia. It has been
shipping material since November 2012. The Phase2 expansion of the Mt
Weld mine and plant is about 70% complete and is expected to be finished
by April-13 in order to match the expansion of the LAMP to full capacity. At
full capacity the LAMP will only require the mining of about 150ktpa and
the production of 65ktpa of con. So it is a very small scale mining
operation.
 Con is placed in 2t bulker bags and transported in shipping containers to
Freemantle, then shipped to Kuantan in Malaysia.
The LAMP:
 Phase1 is complete and producing. Ramping up to design capacity of
11ktpa of REO products. First deliveries to clients this month. Revenues
next quarter with, shipping times, customer qualification, and invoice

Phase2 is more than 90% complete and will be ramped up in parallel but
behind Phase1 during 2013. The remaining capex to complete everything
is $37m. There is no more capex after this, it is all completed in this fiscal
year ending June-13.
 It is likely that by the end of this year LYC will be producing at the full
nameplate rate of 22ktpa.
 The company has been testing both the Mt Weld plant and the LAMP with
consistent feedstock and with high/low grades in order to find the
tolerances.
 Questions re the Temporary Operating Licence (TOL) were
discussed:
 All of LYC’s approvals are for the full capacity of 22ktpa so there is no new
process required in Malaysia for the expansion. It was LYC’s own decision
to construct the plant in 2 phases.
 All new licences are “temporary”. If the plant operates safely and within its
licence conditions for the first 2 years then the licence just becomes a
regular operating licence.
 There is no condition requiring LYC to export waste. The licence condition
requires that a permanent disposal facility (PDF) be identified this year for
storing all of the solid wastes. The company has already made the first of
5 $10m payments for the expected cost of the PDF. Alongside this, LYC
has made a voluntary undertaking to reprocess the waste and sell the
material as roadbase/construction material. The original plan was for long
term storage at site which would have lasted several decades but because
of the sensitivity from local community LYC has made its undertaking to
reprocess and export and is actively discussing with potential customers.
 Why LYC chose to set up in Malaysia:
 The key reasons are 1)lower cost of construction and labour, 2)the
government actively lobbied to have the plant located there and granted
LYC a 12 year tax holiday as an incentive, and 3) the location has many
existing chemical and petrochemical plant that can supply cheap energy,
water, and consumables for the rare earth process.
Other Matters:
 The company will be holding an analyst site visit at the plant on 18-20
March.
 The government has approved the Bukit Merah operation that has much
higher radiation than the LAMP.
 The most interesting anecdote from the presentation was that Nick Curtis
attended the World Economic Forum and had a positive meeting with the
Malaysian Prime Minster and Minister for Science while in Switzerland.
 The FY13 result will show a loss. That is as we expect. Costs will be high
and revenues low. This is normal for an operation in ramp-up phase. WE
have used very high $24/kg cost in the ramp-up phase, which them
gradually decline to $10/kg. We will be watching closely to see how the
operating costs stack-up once the plant is in steady-state mode.
 The Phase1 production is 90% contracted. Prices will be on a “China plus”
basis which will be roughly in line with the published China FOB prices that
are roughly 50% more than the Chinese domestic price. LYC readily
admits though, that it is a new supplier and it will be a price taker for its
products. Even though it does not sell only individual Oxides, market
pricing is based on the oxide equivalent of the finished product from the
LAMP. We calculate using the published individual REO pricing and multiply
by the individual REO proportions in the LYC resource to achieve the average pricing for the basket per kilo.

Investment Thesis still very strong
 There was some additional detail but there were no surprises at this
presentation. At the current market cap investors are paying for the build
cost of the plants at Mt Weld and Kuantan and almost getting for free one
of the world’s largest and richest rare earth deposits. Not to mention that
there is little value being factored for the future earnings that are
imminent. LYC is trading at less than 5x and 2x PE on FY14 and FY15. It is
trading at less than 1x EV/EBITDA on FY15. Accordingly, we retain a Buy
recommendation with a price target or $2.33/share.