time to short, page-10

Unfortunately, here's one, from last night's Eureka Report by Tim Treadgold. I think he needs a bit of education - he's been carried away by too many headlines and hasn't understood the real fundamentals:

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Lynas Corporation (LYC)

Three months ago, when Lynas chairman Nick Curtis was delivering a talk at the Diggers & Dealers conference in Kalgoorlie, he spoke as boss of a company valued on the stockmarket at $3.7 billion, a point noted boldly on the third page of his presentation.

Today, the same company is valued at $1.8 billion, a resounding fall of 51% which, in theory, might make Lynas a stock to buy given the discount and the fact that it remains Australia’s top player in the rarefied world of rare earths.

Lynas, however, has a few problems. They are:

Investors are waking to the fact that rare earths are neither rare, nor are they earths; they are minerals.
That new production is heading for what is a very small market.
That the rare earths business remains under the thumb of China, which can manipulate prices to suit its domestic requirements.
That Malaysia is dragging its heels on issuing an essential import licence to permit the processing of the company’s rare earths at a purpose-built facility.


Of those four points the most important is rising production in the Western world, with Lynas’s own mine at Mt Weld in WA on the brink of starting deliveries, as is Molycorp in the US, which is redeveloping the Mountain Pass mine in California.

Until a few months ago investment markets were fascinated by the concept of a family of 17 unusual metallic elements being essential ingredients in many modern technologies, from iPads to precision-guided bombs and missiles – a point proudly marketed by Molycorp.

With its foot on an estimated 90% of global production, coupled with rising demand, China was able to manipulate the market to the point where a basket of rare earths selling for $US10 a kilogram just three years ago rocketed up to $US200.

More recently, the price of same basket has fallen to about $US150, prompting China’s biggest producer, Baotou, to suspend output for a month to prop up prices.

The problem for all prospective rare earth producers is that China might have over-played its hand by tightening export controls last year, which led to fears of a global supply shortfall of the essential elements which, in turn, led to speculative hoarding.

Now, with Lynas and Mountain Pass moving into production, and with other new mines moving off the drawing boards around the world, rare earths suddenly look a lot less rare.

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