lynas, a value investment..., page-12

ausheds wrote: in the quarterly report last night LYC stated av Quarterly price of $90 as compared to the current spot of $160 so sales last month would have averaged $90. If your comfortable with %90, well bingo, you've just won yourself an SP at $6.10.

Nice post ausheds...but not bullish enough.:-)
JPM makes the same mistake over an over on this point, When the prices keep going up an up (never a down week in the last year), they are crazy to think our first production will stop the end market prices, and dragging down their basket price based on quarterly averages does not make senses. Here is a quick summary of prior quarterly averages:

Q3 2010 US$34.06/kg
Q4 2010 US$62.18/kg
Q1 2011 US$90/kg
Clearly this quarter will be more than the current $160 (I'll guess $175), the Q3 should be about $235, then Q4 (our first production Q) is at $300, and then at full ramp up we got to $350-$400. It is the trajectory of the price that matters right now. Now this may slow or increase, but whether you use quarterly averages or weekly prices the same fact is clear. The basket is rapidly rising and an informed NPV case must take into account that nothing appears to exist that will change the price trajectory before our production. So this will translate to real big earnings.

So if we are at a 11,000tpa level and the trajectory even slows after production it is very reasonable that we make $400/ kg (average basket in 2012) x 11,000tpa= US$4,400,000,000 in annual revenue.
If costs are as JPM assumes (US$13-14/kg over the first five years) at 11,000tpa we would subtract:
$13.50 x 11,000,000kg/annum= US$ 148,500,000

So annual revenue minus annual cost gives us:
$4,400,000,000 revenue minus
$ 148,500,000 operational costs
equals US$ 4,251,500,000 annual revenue for year 2012.
If we have 1.8 billion share by that point we would have 2012 annual earnings of US$2.36/share. Then I would attach a forward PE of 10 (based on asset value and Phase II Growth and end up with a target share price of US$23.60 which currently equals a LYC price of about:
A$21.52.

Then in 2013, if Moly's scrambling only holds the 2012 basket price steady through 2013 and Lynas phase two completes on time the share price doubles to:
A$43.04

This may seem wildly bullish. But keep in mind how many things I am ignoring (Crown, Malawi, by-products, further efficiencies, ect.). All of this is based on rising prices for our basket. With no additional supply (in fact a China H2 2011 production cut seems likely) and consistent demand.

Now some wet blankets will say a $400 basket will produce demand destruction. I think not. With government funding in the green uses, and such inelastic demand based on the small portion of the total cost coming from the rare earth oxide, I think the target is far more right then JPM IMO.

Supporting data:
http://www.lynascorp.com/content/upload/files/Q4_2010_Quarterly_Report_-_FINAL_FINAL.pdf
The average quarterly price for the Mount Weld Rare Earths distribution increased by 83% over the quarter to US$62.18/kg REO.
http://www.lynascorp.com/content/upload/files/Quaterly_Report/2010/Quarterly_Report_for_period_ending_30_September_2010.pdf
The average quarterly price for the Mount Weld Rare Earths distribution increased by 110% over the quarter to US$34.06/kg REO as at 30 September 2010.