I have been looking for a reason for the recent price action and I noticed the LYC US ADR (American Depository Receipt) showed a price gap on April 4 which now appears to be filled at current price levels... I am not a TA guy, I far prefer fundamentals but given some of the apparent willingness of some investors to give away their ownership in Lynas, I feel compelled to come up with a reason, any reason to sustain my faith in this company and industry...
Yes, I realize that current headwinds including the Forge transaction, the ambiguous policies of the Malaysian ruling class where everyone seems to have a important title, position and opinion, and now the "structural" design problems with the tailings dam... Problems?... Really?...
Does anyone recall the development of the microprocessor? I can specifically recall that there were major contamination issues where dust, sand and even human hair were caused 'major" defects in the silicon substrates and a solution was developed using clean rooms in the manufacturing process... Many of the early companies faced significant problems but in a short order became hugely successful and profitable... Companies like Texas Instruments, Intel and Fairchild all developed successful microprocessors and of course demand for these was exponential and far greater than anyone ever imagined...
So the question becomes whether or not the REE industry is a mining industry or a nascent technology (like the semis) that will demand continuous evolution and R&D...
As Mark Smith CEO of Molycorp noted when asked about the metal oxide separation process: "The ability to process is very, very critical and very, very complex" (Comment made at the 5th International Rare Earths Conference, Hong Kong, 2009)...
Also he noted that most of the junior REEs are beginning to sort out the exploration issues. That said, it seems REE investors are enthralled with every Tom, Dick, and Harry that raises $25m in an IPO, Secondary or Private Placement... $25m... Really?
How far does $25m go when there is no business plan in place to answer issues such as exploration, permitting, environmental issues, supply line logistics (including concentration, separation and distribution) and, Oh yes, the capital to accomplish all of this... $25m is inconsequential...
Anyway Mark Smith seems to have his eye on future element oxide producers and mentions Lynas and Moly as the only viable REE companies to be able to provide the supply quantities needed in the near future... He also must be an economist, I believe he astutely predicted something to the effect that "demand itself will be limited by supply" Wow, I see a Nobel in economics, he must be a descendent of Adam Smith ;)...
OK, it is a fact that there are facilities separating REEs that are currently operating in various parts of the world. Examples include LCM (Less Common Metals), in Great Britton, Santoku America, in the US, MolyCorp and some Canadian producers... While their production is small they must be facing the issues of radioactive Thorium. They too operate in countries that have strict environmental regulations and obviously the Thorium issue is a non-issue... It stands to reason that when they finally figure out who is in charge in Malaysia, these problems will too pass... The NC issue will also be resolved and the end result will have little effect on the big picture, that being Lynas as a financially lucrative producer of the elemental oxides... Forge pales in light of the patent infringement wars between Texas Instruments and Intel over the first uP's... They both ultimately won...
The bottom line, is that IMO it seems that Lynas is the "first kid" in the family... The headwinds encountered are amplified and in the big picture will be solved to everyones satisfaction... That said I have included a link that shows a 3 month comparison of REMX (the US REE sector ETF), MolyCorp and Lynas... The fundamentals tell me Lynas is probably the strongest company and the charts show it as the best value investment in the industry... Remember, this is JMHO...
(20min delay)