chat with matthew james, page-15

Matthew James, per butcherboy:
The view of the company is that the 5,000 tonnes of rare earths (I
assume that is annual output) that will come from Crown will assist
them in their competitive edge in the market by keeping out new
players around the 5 years out timeframe.

TazM:
If Forge mines the ores and sells to Lynas, it will be at market
prices (5000 tons Lynas to market sourced from Forge), another
ridiculous thing for Mathew James to put a positive spin on.

--

Actually, although I've been vehemently against the "sale" or lease of
Crown et al to Forge, the way Matthew James has explained it, it's
possible it actually makes sense for us as shareholders.

Does anyone know the market price for RE concentrate (the stuff that
comes out of the WA concentrator, and the stuff we'd be buying from
Forge) vs the final basket price for the separated product (the stuff
that comes out of the LAMP)? Putting it another way, what is the
relative value-add of concentration vs separation?

Some different scenarios:

1. Lynas holds onto Crown, Crown is developed in 7 years time (we've
been too busy with other stuff in the meantime), basket price in 7
years is $50/kg (due to increased supply from others), processing
costs of $10/kg (mining, concentration, transport to LAMP,
separation), then we'd be making 5,000t * ($50/kg - $10/kg), or
$200m/year from Crown

2. Lynas leases Crown to Forge, Forge develops Crown in 2 years time,
basket price in 2 years is $200/kg (noone else is yet supplying
significant amounts of RE), Lynas buys concentrate from Forge at
$50/kg, processing costs of $5/kg (transport to LAMP and separation),
then from Crown we'd be making 5,000t * ($200/kg - $50/kg
- $5/kg), or $725m/year from Crown

3. Same as scenario 2, but concentrate from Forge costs $160/kg, in
which case we'd be making 5,000t * ($200/kg - $160/kg - $5/kg), or
$175m/year from Crown.

Actually, scenario 3 is probably still better than scenario 1 because
$175m/year in 2 years time is better than $200m/year in 7 years time.

Of course these scenarios include massive assumptions, and the final
outcome is sensitive to those assumptions (you can play with some
figures yourself), but this may be the way the deal was "sold" to the
Board, and the reason the Board is in favour of accepting the deal.

Then of course there's another scenario...

4. Lynas holds onto Crown, Crown is developed in 2 years time using our
abundant cash flow, basket price in 2 years is $200/kg, processing
costs of $10/kg, giving 5,000t * ($200/kg - $10/kg), or $950m/year
from Crown.

All these scenarios are have also ignored the non-rare-earth valuables
in Crown. Perhaps, as Lynas' plan is to focus on rare earths, the other
valuables have been discounted to insignificant in the Board's
deliberations.

All in all, I'm still strongly against the Forge deal, but working
through the figures above has made me think that perhaps it's not quite
as obscene as it first appeared.

Food for thought!