copy of val $ 2.17

Lynas Corporation Limited (LYC ? A$1.56), Overweight ................................................................................. 39

Upgrade to OW - risks priced in with clear valuation upside

? We upgrade our recommendation on LYC to Overweight with a new Dec11 price target of $2.17. This follows a

comprehensive review of our forecasts including incorporating the likely impact of a formal agreement with Sojitz (due

before Mar11) for offtake, distribution and financing arrangements for the expansion of LYC?s Integrated Rare Earths

Project.

? Earlier this month, we visited Lynas? Advanced Materials Plant (LAMP) in Kuantan, Malaysia. We view the successful

construction and commissioning of the LAMP as a key share price driver over the next 12mths. In this note we provide an

overview of the current status of the project and outline what still needs to be done to bring it on line. Engineering design is

largely complete and peak construction activity is expected in Feb-Mar 2011. For us, equipment delivery, contractor and

subcontractor performance and procurement of critical items are the key risks to the successful construction and

commissioning of the LAMP. Mgmt reiterates its "confidence in cost at completion", but given we can't rule out unexpected

problems through to commissioning we continue to apply a 15% WACC in our $2.17 NPV to account for these risks. But,

most importantly, we believe investors are being adequately compensated for these risks at the current share price.

? We believe that LYC enjoys a strong competitive advantage given its position as a viable source of new non-Chinese supply

of rare earths. The LAMP project is progressing within budget and is on track for first feed to the rotary kiln in 3Q CY11.

Beyond that, the proposed Sojitz Agreement (with JOGMEC debt funding) increases our confidence in the timely expansion

of the LAMP. Completion of the Sojitz Agreement would mean that more than 70% of the 22Ktpa capacity of the expanded

LAMP is allocated. Key near term catalysts include completion of the Sojitz deal (possibly as early as Feb11), executing

additional offtake agreements with other third parties, updates on the construction schedule (due late Jan11), marketing of

synthetic mineral products and an announcement on China's 1H CY11 rare earths export quota.