lynas v batou

Maybe something for Warhorse to take a look at.

Came across a couple of slides from the April '09 presentation while looking for something else.

Forgetting about Molymess (until after the Ides of March, lol) Baotou, as the world's largest individual RE producer, now also with most of the Northern LRE production consolidated with it, and heading up the new trading platform has to be Lynas's ultimate bench mark.

First slide outlines CLD's advantage in grade & suite. Some grade advantage is lost in the transport to the LAMP but composition i.e. lower Ce, higher Nd and much higher Dy, Eu & Tb credits clearly shows a 20% advantage at '09 prices. Given the relative movements in individual prices I think if you reworked that to 2013 prices you'd find the 20% extended.

Second slide gets even more interesting when we compare sales values against CoP respectively. While not exact I think it's reasonable to simply multiply all values by 3 to get a 2013 snapshot.
Lynas basket becomes $30.21kg v $36kg and CoP $16.95kg v target $14/15kg so they are conservative and as indicated the Lynas basket could well be even higher relative to Baotou's today.
Baotou's CoP $5.35 x 3 = $16.05 is slightly over Lynas's estimate of Chinese CoP at $14/15kg, Export Tax & VAT would increase proportionally but the quota cost of $1kg would be static.

The interesting conclusion is that China's largest RE producer is back to break even again at FOB, or export pricing, at current price levels. Probably circa 20% margin domestically.
Lynas margin $4.42kg x 3 = $13.26 kg which is pretty much in line with JPM's realised price estimate $27kg (supported proportionally by Molymess's actual sales prices) - Lynas's CoP target of $14/15kg.

Effectively China could remove their quota & taxes completely and Lynas would still be price competitive, China would need to very obviously price dump in volume to impact and given the current rhetoric & existing WTO action I think that's highly unlikely.

If the above is anywhere near right I'd suggest Lynas's fundamentals are looking great. Let's not forget Ph2 ramp up can be delayed to coincide with rising demand if necessary but optimism in the world's largest market is clearly rising and with it consumer purchasing power:

"Rally cry for a US revival"

http://www.businessspectator.com.au/article/2013/3/11/economy/rally-cry-us-revival