LYC - NdPr Price, page-3

ContraryJ. I actually wrote you a thesis on why REO prices have to rise BUT I pressed the wrong button and deleted it. I cannot be bothered doing it again so I'll just do an executive summary
1. China REO production comes from 5 SOE's (State Owned Enterprises) and illegal mining.
2. Illegal miners ("IMR") produce about one third
3. The waste products from REO production are incredibly toxic and IMR simply dump this STUFF-FROM-HELL into the local environment. It quite simply kills the air, land & people
4. China has to and wants to close down the IMR. PROBLEM - how do you replace the lost production?
5. The IMR have forced the REO prices down to unsustainable levels in recent years and as a consequence the SOEs have sustained heavy losses. Thus no money for reinvestment.
6. The result of low REO prices has been a lack of investment in capacity expansion in existing plants and the development of new plants in China and ROW (LYC aside). Mountain Pass, USA closed in 2015 with debts of US$1.5b. Once the largest world supplier of REOs
7. The REO DEMAND (for a select group of REOs) is currently STRONG and forecast to get even STRONGER. I believe this otherwise I would not be here.
8. So we have a situation where:
a) REO DEMAND is strong
b) REO SUPPLY is already tight and will get much tighter once CHINA gets the big stick out. I understand this is already being applied to the worst offenders resulting in reduced REO production from the IMR
9. So to balance the REO DEMAND/SUPPLY EQUATION REO Prices must rise to an economic level for SOEs, LYC and other small ROW producers. This will encourage investment in new capacity which takes some considerable time and cash in the REO market.
10. The above dynamics are driving the current REO price increases. They are fundamental and NOT speculative. The REO price will eventually gravitate to a new level where sufficient profit is earned from REO production to encourage investment in new supply and balance the market.
11. The peculiar characteristic of the REO market are that it takes considerable time, cash & expertise to build new factories. This suggests we could be in for a period of sustained higher REO prices before market balance is reestablished.

So in the meanwhile LYC will enjoy the fruits of all its excellent work and see a sustained improvement in profitability which we the shareholders will rejoice at.
5.
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