Shorting continuing, page-3

I see you have had a long term interest in ORE but I can understand the desire to sit it out at present.

I think you will find that all 256 t of Lithium carbonate was saleable. The 50t of saleable lithium carbonate comment was in relation to Lithium recovered in an unexpected part of the purification circuit (the tanks after the absorption stage) - ie it might have been accumulating for a while and therefore potentially overstated the September production. Unfortunately, in trying to provide full disclosure they have used wording that could lead to confusion on a quick reading.

They are more explicit in their sales comments - "all product that has been reported as produced is saleable product and has been sold or committed to a customer's purchase order".

The situation is not half as bleak as some may imagine. Sun and salar are clearly performing as expected, as evidenced by the inventory build in the ponds. The process chemistry is just fine - they have been at 99.98 to 99.99% Li2CO3 since May and June. The issues appear to be in heat balance (hence the frequent references to heat exchangers for cooling and additional boiler capacity), and in fouling and blockages due to crystallisation occurring in odd places due to the incorrect temperatures (hence the move to centrifuges and redundant heat exchangers). Their fixes for these problems seem rational enough. Provided there are no undisclosed issues (right now they seem to be going to pains with full disclosure) then I think their timeline to nameplate is credible.

In the meantime though, I'm sure the shorters simply read the headlines and sniff another Lynas, in the mire for the long term. The shorting is pretty tedious, and ASICs reporting (or at least their data collection) is patchy at best. The aggregate shorts position leapt by 935k on the 21st - a day in which the daily short sales were reported as 79k and for that matter only 425k were traded in total that day. It is not the first time I have seen a move in the aggregate position that far exceeds the daily sales.

At some point though, the sideline sitters will see the progress in output and decide it is time to step back in. Total shorts are now at almost 8m while the 30 day MA volume is around 230k (of which the shorters have contributed heavily on the sell side). When the momentum starts to move against the shorters this could rerate very quickly.

I'm looking beyond the immediate future to what will come next when positive cashflow begins. We know there is potential for a potash circuit to be added for minimal cost, and there has also been mention of possible LiOH, but I suspect we will forego these in favour of a quick start on a stage 2 Li2CO3 expansion. It makes sense to build on what has already been learned - low risk. They talk in terms of incremental output coming at a 40% discount in capital intensity compared to stage 1, so maybe 120m USD to be invested for another 17ktpa. With strong cashflows coming from stage 1 nameplate production and potential funding partners already indicating interest, there will be no need to come back to the market for capital. And then there is Cauchari, Salinas Grande, etc. IMO, this is the start of a good growth story - just got to tough it out over the next few months.