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Hi All,
Lynas Corporation Limited
Initiating Coverage With A BUY Recommendation
Materials | Metals & Mining | Australia
JBWere Goldman Sachs

We are initiating coverage of Lynas Corporation Ltd (LYC).
LYC is developing the Mt Weld Rare Earths project in Australia and Malaysia.

Lynas Gold NL transformed from a gold explorer (Western Australian) in 2001 to the developer of the Mt Weld Rare Earths Project and changed its name to Lynas Corporation Limited (LYC).

Following a change of control in 2001 and a new management team and board being installed, the potential of the deposit was fully recognised and became the focus of the company.

LYC had earlier entered into a JV with Ashton Mining by funding a feasibility study to earn a 35% interest with an option to move to a controlling equity position.

In May 2002, LYC moved to 100% ownership of Mt Weld, giving it control of the whole of the carbonatite system other than rights to the phosphate mineralisation, which at the time belonged to CSBP Limited (a subsidiary of Wesfarmers).

Following the completion of a Definitive Feasibility Study (DFS) and a number of different funding arrangements, LYC finally moved to full development of the project in 2009 with an equity raising of $450m.

Most recently, in April 2011, LYC raised $100m and $225m of additional debt (225bp over LIBOR) to allow the acceleration of Phase II and to provide further contingency for Phase I.
The Malaysian government has recently appointed an independent panel of international experts to conduct a one-month review of the health, safety and environmental aspects of the Lynas Advanced Material Plant (LAMP), currently under construction in Gebeng Industrial Estate,Kuantan, Malaysia.

Earnings and Valuation Impact:
We forecast first positive earnings for LYC in FY12 on the commissioning of Mt Weld/LAMP. Our strong forecast earnings growth is driven by both increasing volumes and the favourable pricing environment.

Our base valuation includes the production of Rare Earth Oxides (REO) mined from Mt Weld and processed in Malaysia. We include potential of the Kangankunde Project in Malawi in our upside case only.

Investment View:
1. We initiate coverage with a BUY recommendation and a 12-month target price of $3.75 (based on a ~15% discount to our base valuation to take account of the risks at this stage of development).

2. Our strong view on the positive fundamental outlook for REO is reflected in our favourable pricing outlook.
3. We highlight LYC as an above-average risk investment, but see risks declining as final approvals are given & production starts.
Ian Preston | +61 3 9679 1453 | [email protected]
Paul Hissey | +61 3 9679 1779 | [email protected]
Brett Cottrell | +61 3 9679 1565 | [email protected]
BUY
Key Information
Stock Code LYC
Share Price $2.03
12 Month Target Price $3.75
Expected 12M Total Return 84.7%
Investment Data
Issued Capital 1,690.8m
Market Capitalisation $3432m
% of S&P 200 Index 0.3%
Free Float 100%
Turnover $423.9m/month
12 Month Price Range 270�-38�
Debt/Equity -31.1%
Investment Arithmetic
Jun year end 10A 11E 12E 13E
Net Profit Rep. ($m) -43.0 -34.9 463.0 2266
NPAT Pre-NRI's ($m) -22.7 -28.1 463.0 2266
EPS Adj. (�) -1.7 -1.7 27.1 132.5
EPS Growth (%) nm nm nm 389
PER (x) nm nm 7.5 1.5
Relative PER (%) nm nm -28.0 -83.8
Dividend (�) 0.0 0.0 10.0 53.0
Yield (%) 0.0 0.0 4.9 26.1
Franking (%) 0 0 0 0
FCFPS (�) -2.1 -0.9 27.8 135.3
P:FCFPS (x) nm nm 7.3 1.5
EV/EBITDA (x) na na 5.6 0.6
BV (�) 45 39 65 163
P/BV (x) 4.5 5.2 3.1 1.2
Av. Full Dil. Shares (m) 1333 1666 1710 1710
Share Price Chart
Relative Price Performance
1m 3m 12m
vs. S&P 200: -9.9% 15.6%286.6%
vs. MSCI - World: -10.1% 18.2%288.9%
Source: Company data, IRESS, and GS&PA Research estimates