LYC is one of the ASX best performance shares in recent years. LYC share price from March 2009 $0.10 to current $2.25 PS is 22.5 times up, which means if you invest $1,000 in March 2009, now it worth $22,500. I remembered an article said that Microsoft co. once makes many millionaires, so will be LYC. Why?
I believe the fundamental outlook for LYC is positive. There is significant first mover advantage to be gained by those companies able to supply rare earth and LYC is the one. The two biggest mines outside China are Lynas's Mt Weld and US Miner Molycorp's Mountain Pass project in California.
Lynas April 2011 the basket price of rare earths from its Mount Weld mine in Western Australia, one of the largest and highest grade resources, was $US162.66 a kilogram, compared with an average of $US10.32 in 2009.
Goldman analyst Malcolm Southwood tipped this basket to rise 40 per cent to $US227 a kg in 2012, as China further cuts its export quota, before cooling in the following years as projects outside China came on line. Lynas production costs are $10 only per kilogram. So how profitable the company will be!
LYC resource 17.49MT @8.1% FOR 1,416 KT REO @$US162.66 a kilogram, the in situ value of CLD and Duncan is about US$230 billion at the FOB spot price. As China continues tightening exports of rare earths, these metals' prices, along with shares of rare earth miners, have been surging. Since these elements vital to smart phones, nuclear shields, windmills, solar panels, and defense systems, the trend higher will likely continue as long as supply stays tight.
The biggest opportunity I see in rare earths is its importance for green technology. The Toyota Prius uses rare earths. All hybrid cars use rare earths. Each windmill uses a ton of rare earths. Multiply that by the number of windmills being built gives the total demand from just the wind energy industry. But also the nuclear disaster in Japan has caused some governments to turn to different sources of energy. Japanese TV noted that Switzerland and Germany stopped their orders for new nuclear power plants. This is good news for the solar industry.
Hybrid cars ?V our future Hybrid - 100 years after the Model-T. Hybrid vehicles could revolutionize the automobile industry. Hybrid is in the 21st century like the Model-T 100 years ago.
Hybrid vehicle technology is dependant on Rare Earths Hybrid electronic motor and generator - Neodymium Praseodymium Dysprosium Terbium Hybrid NiMH battery - Lanthanum Neodymium Cerium Enabling better emission standards and lower energy consumption. Across the range of rare earths are several key features which make them attractive: ?F?nNeodymium (Nd) and samarium (Sm) are highly magnetic; ?F?nyttrium (Y) intensify the display of colours in phosphors; ?F?nCerium (Ce) is an effective polishing and cleansing agent and also has an important role in automotive catalytic converters.
LYC's Mt Weld is most abundant (Cerium (Ce), Lanthanum (La), Neodymium (Nd) and Praseodymium (Pr)), the market is undersupplied. Rare earth elements at CLD - Cerium (Ce) 46%, Lanthanum (La) 26%, Neodymium (Nd) 19% and Praseodymium (Pr) 5%; All of these rare earths have important catalytic, electrical and optical qualities while neodymium also possesses important magnetic qualities.
EPS
LYC Central Lanthanide Deposit &Duncan Deposit at Mount Weld Tenements - resource 17.49MT @8.1% FOR 1,416 KT REO, MINING LIFE +64 years under full production capacity, Phase 2 - 22,000tpa REO 2011/2012 financial year??s production under Phase 1 will be 11,000tpa REO, revenue will be close to US$1.8Billion under current FOB spot price US162.66 a kilogram. Lynas production costs are $10 only per kilogram. Operating Profit will be close to US$900 Million. Thereafter production under Phase 2 will be 22,000tpa REO, revenue will be close to US$3.6Billion. Operating Profit will be close to US$1.8 Billion. As I said LYC will be very profitable company and so EPS will be excellent.
PEER Comparison
As there is none Rare earth production company in ASX, I??d like to compare LYC with a copper producer EQN. LYC Central Lanthanide Deposit &Duncan Deposit at Mount Weld Tenements - resource 17.49MT @8.1% FOR 1,416 KT REO, the in situ value is about US$230 billion; EQN resource 7.158 MT Cu, the in situ value is about US$63B at current price US$8790/T Cu. The in situ value LYC is 3.7 times of EQN. Market capital LYC A$3.8B is only about half size of EQN current MC A$6.88B. As we know EQN become copper producer only in recent years, starting from 2008/2009 financial year. In 2- 3 years time when LYC become Rare earth producer at the current EQN stage, the LYC market capital can be reach A$20 -25Billion, so share price can be 4 -5 times current share price and reach A$8.00 per share.
Target price $3.50. Good luck!
LYC Price at posting:
$2.29 Sentiment: Buy Disclosure: Held
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