Westpac upgrades to Accumulate. LYC is speculative. We increase...

Westpac upgrades to Accumulate. LYC is speculative. We increase our valuation to A$0.73ps. The ‘perfect storm’ of a structural shortfall in supply, fiscal imposts and very strong growth in demand could deliver substantial gains. Our long term basket price assumption is raised from US$5.00/kg to US$7.50/kg, in line with the 10-year average. The actual basket price increased to US$8.27/kg in 2Q07, a 67% rise over the year from US$4.96/kg, and is currently in excess of US$9/kg. We retain our long US$/A$ exchange rate of 0.76 and the 15% discount rate. Lowering the discount rate to 10% increases the valuation to $1.07ps.