A watermelon & two cheer leaders, joined at the hip in a...

A watermelon & two cheer leaders, joined at the hip in a marriage of convenience, HC is nothing if not entertaining.

Consequently the story line is quite bizarre, to the point I couldn't be bothered pulling it apart, simply post comment from the adults in the room:

Lynas Corporation

Unearthing a Rare Cash Cow

Initiating Coverage of Lynas with a Buy rating

We initiate coverage with a Buy rating and a A$3.30ps price target. Lynas's assets arestrategic, having the best global Rare Earth deposit, in our view, exploited through theonly active non-China processing facility. Lynas's key product, which drives 90% of therevenue, is called Neodymium-Praseodymium (NdPr), used in high growth new energyapplications such as Electric Vehicles and Wind Energy. To justify our valuation of$3.27ps, we have undertaken a detailed incentive price analysis to estimate a long-termincentive price of US$60/kg (ex-VAT) for NdPr. The share price implies closer to spot ofUS$45/kg. Lynas is highly cash-generative and de-gearing quickly.

Operations working well now, spinning off cash and de-gearing quickly

Ramp-up has been difficult, but that appears to be largely behind the company.Production has been steadily improving and costs are below guidance as the businessscales. Lynas's Project NEXT is expanding production from 16ktpa to 25ktpa of RareEarth Oxide including 7.2ktpa of NdPr by 2019. The difficulty Lynas had in ramping updemonstrates a massive barrier to entry for peers. It might take five years or so for ajunior to build / fully ramp up its project if it was to obtain funding.

UBS 23 July 2018

56 pages in total not just analysing the Lynas business but also a broad overview of both the industry & ROW wannabes to substantiate its findings. From those I've spoken to it is regarded as the most accurate forecast to date, if as I suggested it is a bit to the conservative side, as it needs to be.

Response to this silly "bloated" thread, estimated June 2022 net (debt)/cash position A$492M (but reckon Jim will have drawn some of his dividends before then).

That's on 79% revenue growth FY18 > FY22, based on gradual appreciation NdPr $48kg > $62kg, hardly stretching credibility, other than that of the wannabes of course. NdPr $60kg was regarded as the Incentive Price where any remaining wannabes might get funding, while noting Lynas ability brownfield brownfield expansion to block juniors.

As to alt investments: "our Lynas model having an EBITDA marginof just over ~40%", "compare our LT price with the 25th percentileproducer of several LT cost curves of other commodities. A ~40% EBITDAmargin would put Lynas’s margins among the highest in long-term mining for aQ1 producer", "interesting how concentrated theRare Earth market is. China Northern Rare Earth High-Tech produces around74ktpa of REO in a 140ktpa market", "Rare Earths appears to be the most consolidated supply side of anycommodity", "So we are comfortable imputing this LT margin into our valuation for Lynas."

Shorthand: No Peer