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.
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Last
$6.73 |
Change
0.070(1.05%) |
Mkt cap ! $6.290B |
Open | High | Low | Value | Volume |
$6.71 | $6.75 | $6.68 | $16.15M | 2.404M |
Buyers (Bids)
No. | Vol. | Price($) |
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1 | 11 | $6.73 |
Sellers (Offers)
Price($) | Vol. | No. |
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$6.74 | 27012 | 8 |
View Market Depth
No. | Vol. | Price($) |
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1 | 11 | 6.730 |
1 | 145 | 6.710 |
1 | 44 | 6.690 |
2 | 18981 | 6.680 |
4 | 39894 | 6.670 |
Price($) | Vol. | No. |
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6.740 | 22199 | 7 |
6.750 | 15281 | 2 |
6.760 | 2500 | 1 |
6.780 | 100 | 1 |
6.790 | 6200 | 2 |
Last trade - 16.10pm 03/06/2024 (20 minute delay) ? |
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Last
$6.71 |
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Change
0.070 ( 0.95 %) |
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Open | High | Low | Volume | ||
$6.66 | $6.75 | $6.66 | 922720 | ||
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