AGM... Top 10...

I just left Sydney after attending the AGM (annual general meeting) where I was able to meet up with several regular HC posters and of course the management team at Lynas.  I typically try to attend the AGM however Covid prevented those of us from outside the country from traveling to Australia for any reason.  In any event I was able to couple this years trip with a visit to the new Kalgoorlie cracking and leaching plant and it is my plan to post the Kalgoorlie experience in the next few days.  In the meantime I thought I would summarize this years meeting in a “top 10” format as there are some very good reasons for owning Lynas as a long term investment.  While I did list these attributes in order of importance keep in mind that this is my evaluation and in reality, all of these attributes work together to make Lynas the company it is today.  That said, I will begin my list with the leader and the woman who is the driving force behind the company…

1.  Amanda Lacaze…

The reason I list Amanda as the number one resource at Lynas is her brilliant handling of the many challenges that face Lynas during the current growth period.  As CEO, Amanda must deal with many difficulties including political, environmental, governmental, planning, engineering and personnel issues.  It seems as though there are constantly new challenges and issues that manifest themselves on a regular basis and Amanda is clearly a master at mitigating most of these problems as they occur…

For example, most LYC investors are familiar with the instability of  Malaysian politics, something that is clearly not a favorite subject for Amanda to discuss.  The Malaysian political morass is something that pervades virtually every move made by the folks at Lynas and the recent elections only intensified matters with the election of Anwar and his party.  In the past Amanda has maintained her cool throughout this difficult process and instead of publicly debating issues has worked her magic in other ways including sincere dedication to the support of the Kuantan population and the implementation of programs that benefit  the community.  As a result, the people of Kuantan appreciate Lynas for the local employment the LAMP provides as they rightfully understand that Lynas is genuine in its community efforts…

It stands to reason that Amanda’s gift of recognizing talent and developing the potential of many key employees is paramount to the operation of the company on its many fronts.  The tremendous progress Lynas has made over the years would not have occurred without Amanda’s ability to recognize and allow key personnel to perform their duties and be given the latitude to develop new technologies and product efficiencies…

One of the questions posed at the AGM was a request that Amanda justify the fact that she sold some of her Lynas shares recently.  While board chairman Kathleen Conlin seemed rightfully indignant at the question, Amanda readily offered a valid response that offered no excuses, instead Amanda seemed proud that she was able to enjoy the fruits of her labor and had zero qualms about taking a profit. To be clear Amanda liquidated a small portion of the LYC shares and I think the general reaction of those familiar with Amanda’s performance is that she is perfectly justified in taking a bit of profit.  In reality, no one I have spoken to has any concerns about the implications to LYC share price…

2.  Management and the Board of Directors

While Amanda is at the helm it should be noted that success of Lynas is the product of a very qualified senior staff and their dedication to the success of Lynas.  Some of these officers have been with Lynas since Amanda assumed CEO duties and their expertise is evident in discussions prior to and after the actual meeting. I have found that there is no substitution for one on one conversations with these ladies and gentlemen. Bits and pieces of the current story can be gleaned from relevant discussions of the current direction and progress of the company…

I would like to mention and acknowledge the Board of Directors for their active service for the company.  I have reviewed the qualifications of the Board members and their backgrounds are both pertinent and diverse to compliment the company mission.  Kathleen Conlon is the chairman of the board and she is a no nonsense and to-the-point leader who wastes little time chasing some of the online, red herring questions that were presented in the meeting.  It should be noted that Lynas might possibly add two new board members in the near future which is appropriate given the recent growth…

3.  IP and Experience...

This is one of the strongest reasons to invest in Lynas and it is what sets Lynas apart from many other RE ventures.  In touring the Kalgoorlie site it quickly becomes apparent that much of the technology used to implement the new processing facility was developed at the LAMP (Lynas Advanced Material Processing plane located in Kuantan Malaysia) over the years.  Rare earth production employs many different steps and it is a process that Lynas is continually enhancing.  For example a shutdown at the LAMP used to take a fair amount of time to “tune” each of the stages on startup.  When I toured the LAMP a few years back the tuning process was in full operation and as I understand it, Lynas has refined this process to allow for a much faster restart of the entire plant, something that in the past required significant amounts of time...

4.  Mt. Weld...

Mt. Weld is a crown jewell in the Lynas portfolio and it is one of the richest rare earth resources in the world.  Few investors realize the significance and size of the mine and Amanda discussed a $500m upgrade to further develop this amazing asset.  If Mt. Weld were owned by a third party I have few doubts that the share price would be off the charts, the mine is that good. Recent drilling has produced some very promising results as far as the sustainability of the mine is concerned and there is a good deal more to explore.  It should be noted that Lynas owns 100% of Mt. Weld...

5.  LAMP.

As I mentioned previously the LAMP is where the magic occurs and that is the separation and purification of rare earth metals.  There are 17 of these elemental metals and when they are mined they occur naturally together in the mineralization and need to be separated into the individual components.  Lynas uses a process called solvent extraction which employs (SX) circuits.  There are multiple circuits utilized in the separation process each of which contains a series of tanks called trains. The trains work by utilizing both an organic solution combined with an aqueous (read water) solution mixed together with the RE slurry. The mixture of this solution is then allowed to settle resulting in a solution much like separated oil and vinegar. During this time the RE's suspended in the mixture tend to associate with either the aqueous solution or the organic solution...

Since the actual separation is much less than a perfect process, this entire process is repeated many times. Each time the organic solution further separates RE's by sending the aqueous solution in one direction and the organic solution in the other direction through the series of consecutive tanks (trains).  Every tank performs the same process resulting in each tank being slightly more pure the preceding tank. The number of these tanks lined up sequentially can vary depending on the level of purification desired and in practice there can be up to 50 tanks or more in each train. For example a four nines purity (99.99%) will require significantly more steps (and tanks) than a lower purity grade of only three nines (99.9%)...

The next step is to precipitate the solutions to extract solid, separated RE's for final drying where the solids are put through a very long tunnel furnace to remove any remaining moisture. The final step is to bag the separated RE's and move them to the product warehouse for shipment to the end user.  This is an over simplification of the process and the details involved in each step are numerous as modifications and improvements are added to the systems.  The bottom line is that the LAMP is a working test bed for developing new technologies, something that will be invaluable during any expansion efforts…

6. Kalgoorlie...

Kalgoorlie is an amazing place.  A couple of weeks ago I had the privilege of touring the Kalgoorlie facility with the project manager Grant McAuliffe and the size and activity at the site is quite simply awesome.  I will not spend time discussing Kalgoorlie here as I plan to make a separate post in the next few days describing my experience…

7. US...

The US project remains a mystery to me, it is tough to gauge progress and there was some discussion amongst our small shareholder group about the intentions of the US working with Lynas on both the light rare earth facility with an additional facility for the heavy rare earths.  It was pretty much our consensus that Amanda will not sacrifice the IP and experience accrued over the years for a quick profit and as we all know, working with the United States political system presents a whole new set of challenges. It will be interesting to follow this story as it develops but it doesn’t seem to be Amanda’s primary focus probably to the chagrin of the US government…

8. Financial...

Lynas has just short of $1b in cash.  That is an amazing number and when combined with the Japanese (JARE) loan facility represents the means to fund new projects when that need arises.  To that end, Lynas is no longer a startup company rather it has become a mature company experiencing rapid growth.  Of course the question of dividends was raised in the meeting and I think it was the consensus of our group that Amanda can achieve far more with our investment capital than any of us could possibly achieve on our own. I know this may not be the popular viewpoint but dividends at this stage would deplete these powerful resources to the detriment of future expansion while reducing the options that come with good old Australia cash…

9.  Political...  

The fact remains that the recent elections resulted in a change in the political environment in Malaysia.  There was quite a bit of discussion about this issue in our group and the feeling is one of wait and see.  Lynas is an asset to Malaysia and most everyone has the feeling that the new man in charge (Anwar) is a fairly sharp leader and will recognize Lynas as a true asset to Malaysia.  Of course this election is a rerun for Lynas, we have been here before.  In any event Amanda discussed the issue and commented that it was not something that keeps her up at night…

10. Market and Growth...   

Quite simply, Lynas will not be a be able to meet market demand.  Virtually everyone I spoke with envisions a rapidly growing market for rare earth products where the supply of rare earth metals will be in demand for sometime in the future.  Growth is predicted in the usual areas including wind turbines and electric vehicles.  It should also be noted that new applications are being researched and discovered, especially for the heavy rare earths.  To reiterate, there are 17 separate elemental metals, each having individual characteristics specific to that element.  IMO, growth in this area will be exponential as the properties are researched and the individual characteristics of each element are discovered and applied to new technologies…

At the end of the day it is very apparent that the growth potential of Lynas is just beginning to be realized by the market even though it has been work in progress for some time.  Sure there may be challenges with the political situation in Malaysia but Lynas has been through this several times before . While the level of integrity has always been front and center the Lynas presence has only been enhanced over the years by the combination of a successful operation accented by genuine community involvement.  There is no substitute for integrity and honesty and these two qualities have been embraced by Amanda and the company from day one.  In my opinion this has been a year of great progress for Lynas and that feeling is shared by many of the LYC investors I have encountered over the past few days.  Rare earths are beginning to show up on many radar screens and Lynas continues to be a big part the story...  JMHO...