did you get the call?, page-8

Oilburner, a few thoughts in reply to your 2 posts above:

1) If Lynas have engaged a team to call retail shareholders about voting intentions, then retail votes count. It may well be that retail investors have the dominant voting rights now in Lynas. You should exercise your vote with care and in your interests as shareholder, rather than any protest vote or informal vote, whichever way that might fall.

2) Re giving up on LYC and living of the pension. Keep in mind that from January we are into normal production and sales. The price should adjust to a normal valuation for the cash-flows being generated plus a premium for growth. I’m not going to preach as to what that may be here, but I don’t think you should be writing off your investment on the basis of the underwhelming SP performance during the difficult development phase of the company. Just enjoy your Xmas and let’s see where things are at in the New Year.

3) I have yet to have a close look at the detail of the performance rights offer, but I get troubled by these issues. I want the current CEO locked in and properly incentivised, but performance rights are often unnecessarily generous, with potential for conflicts in their issue and structure.

On one hand a big incentive aligns the CEO interests to mine. On the other hand, a financial disincentive has effectively been in place the last few months working against supporting the share price.

It would make it awkward for example if the share price ramped up now ahead of the AGM vote, making the issue of cheap performance rights look excessively generous. Ideally for the Board the SP would be fairly low and stable in the lead up to the AGM vote on this.

Similarly the small window post the Oct quarterly for employee share purchases, creates a disincentive to promote the share price in the months prior to that window opening.

Further, Lynas essentially use a consulting firm Mercer to determine a value of the performance incentive (benchmarked against other members of the listed company club), then the board allocates the number of performance rights based on the share price over the relevant recent period. i.e. the lower the SP in the lead up to their issue, the higher the number of performance rights that get issued. Hence a perverse incentive not to promote the company too much in the months prior to executive issues. Such performance rights are maximised when the share price is undervalued prior to issue and over-valued when vested.

I’m no way saying that Lynas have acted on those moral hazards, just that they exist.

Nevertheless, we may find that once the AGM and performance rights issues are voted on and out of the way, a more supportive approach to informing the investment community of the company’s merits and emerging value becomes apparent.