Hey guys,Thought I'd put some thoughts together on LYC and why...

Hey guys,

Thought I'd put some thoughts together on LYC and why it is THE stock of choice for RE at present for myself. There's a lot of smaller companies vying for entry to the space, seeing the opportunity, and either taking over previous long shots or developing their own investment case.

However, my personal belief is a vast majority of these RE discovery / development stocks see the the opportunity as the shareholder, the easy and more certain means for quick money (if you lack morals), not the long term business opportunity in RE which will take more time, blood sweat and tears to wealth... as well as allowing the shareholder their rightful share of future profits. As always DYOR and challenge me on points where I may be mistaken.

I suppose the the first place to start is where I see the actual problem which LYC is part of the answer in solving. I feel that understanding this key to understanding LYC's opportunity, being what drives prices, profits, future growth and overall interest in Lynas.

1. Not resource scarcity (at least in the immediate future) but refining capacity constraints, leading to Refined Rare Earth scarcity. Any additional refined rare earth supply / demand over the next 3 years must come from LYC’s Malaysian refinery.

Allthe talk of new mines / refineries increasing supply and bringing down prices istotal nonsense, at least in the short term.

Asthe below states, it is the refining which China dominates at 85% ofsupply, not the actual ore production / reserves (still at high at ~54% butcoming down).

Thesupply of refined REE is the industry bottleneck.

Commissioninga fully operating refinery is a 2-3 year project at best (and likely small scale / low output). And that's assuming you alreadyhave the intellectual property ready to go on the processing (and it works straight up) which took LYC manyyears to get right (see below flow chart). FYI This IP is not shared to otherindustry players, especially not from Chinese companies.

Further, China has quotas for REEs,which they recently increased and met in an attempt to manipulate prices down, and this acts to constrain additional supply. At worst, generate a lag with demand, putting constant upward pressure on prices.

It took LYC 6+ years to build LAMP, commission it and manage to get it to stated processing output through trial and error. I wonder how long it took all up including original process design, test plants etc! (anyone know this please let me know). I also propose that the gap between a "functioning" plant and a plant able to provide meaningful output and efficiency (without maintenance shutdowns every other quarter) is also extremely wide. This all slows the ability of supply to react to changes in demand, and in our case with rising long term demand, leading to higher sustainable prices.

LYC's IP on design, construction, commissioning and "what actually works" is their greatest asset. I'd value this as an intangible asset and argue that Lynas should trade at a valuation premium to peers. I also believe that it should also make them the first target for mega cap miners who decide to enter the space.

Side note - listen to that mining conference speech by Amanda (she killed it) and you'll learn how they retain their IP, their people. It is retained by their culture and commitment to their people. Every long term successful "great business" starts with a great culture.

LynasCEO 28 Aprill 2022 - “because even though we’re happy to work with thegovernment, we also are not in the business of being any more generous with ourIP than the Chinese are”. https://www.asiafinancial.com/rare-earths-miner-lynas-sees-demand-outstripping-output

Not as simple as the below LYC process diagram makes it look... well kind of makes it look simple...

“In other words, a great deal of rare earthsoxide is required for the green energy and tech revolutions to happen. Itsdemand is expected to jump at least fivefold by the year 2030. However, thereis a huge problem – China completely dominates the rare earths supply chain. In2021, the country made up 54% of global REE mine supply and 85% of the globalsupply of refined REEs. For example, about 16,000 tonnes of REE permanentmagnets are exported from China to Europe each year, representing 98% of the EUmarket.”

https://www.mining-technology.com/uncategorised/china-dominance-rare-earths-supply-chain-risk/

1. The permanent magnet demand is the key driver of LYC’s profitability. There is high levels of industry complexity and supply issues for LYC’s products. These and new supply and demand nuances are emerging simultaneously, compounding the future expected supply vulnerability for Western countries.

The growth in permanent magnet demand is coming from EVs and wind turbines.

Permanentmagnet motors, compared to induction motors, provide for a much more efficientand powerful motor. These motors are higher density NdPr than theircounterparts. Tesla Model 3 uses a PM motor while many other car companies lookto have realized that that near term PM RE supply will not suffice and areseeking alternatives, arguably less effective alternatives. Telsa is the innovator and market leader in EV. Why would other, even more premium car companies not use PMs?

I speculate that the supply is already to too tight, with no visibility pf near term resolution. Remember the 2-3 years minimum to construct a RE refinery.. I speculate that car companies aren't using the ideal EV motor technology due to the impact of supply risk to their business. Keep in mind they (let's say BMW) could easily pass on the higher cost of the PM to their customers who will pa. It is now about supply risk than price risk. I ask myself why Telsa open a factory in Shanghai, risk Trump's rath at the time and IP transfer? How does Telsa have supply agreements of PMs (NdPr) but no other (or not many) car company seems to?

Windturbines are a significant driver of permanent magnet demand, now and into the future. This is known. Whatis now emerging is that wind is growing at a faster rate than other green options, growing wind's shareof the green transition mix. Further, data suggests a that offshore wind farms are growing at a higherrate to land base wind farms.

Offshore turbines use direct drive motors to avoid gearboxissues out at sea. These direct drive motors require, you guessed it, a much higherdensity of NdPr than traditional motors. The outcome is energy transition is only starting its exponential growth journey, wind turbines are growing as a portion of the solution and offshore (direct drive) wind turbines are growing at a higher rate of that segment. The outcome is demand growth on demand growth on demand growth from the energy transmition.

These two demand sources are now competing for a greater share of near-termlimited supply. So we have a situation where demand growth is going to beabove last decade’s assumptions.

1. The next issue is China supply. There are two considerations at play which support Lynas as the only Western RE miner and refiner :

• The geopolitical risks associated with Chinese dominance of refined REEs and permanent magnets has become unacceptable. The Russian invasion of Ukraine, and subsequent sanctions, have brought insight into world leaders over the consequences should China invade Taiwan. Effectively, instead of no gas for Europe it would be no magnet / refines REEs for the West. That would
• Domestic Chinese demand is now of concern. Chinese PMs demand growth for their domestic EV and wind transition is expected to soak up much of their output of magnets, I’m assuming similarly for refined REEs. I have not seen this potential outcome discussed in detail anywhere.... what if the Chinese don't supply Western demand for NdPr because they are simply only able to meet their own exploding demand? Not sure why this isn't being discussed in greater detail. Does this reflect Amanda's comments around needing to multiple LYC's growth target?

"In particular, high-performance NdFeB(neodymium-iron-boron) magnets are crucial inputs for EV motors and windturbine generators, and their demand is likely to grow at an estimated 18% perannum through 2030.

Even if China ramped up capacity, it isunlikely to export a large portion of such magnets because its own burgeoningEV and wind markets will absorb much of the supply.

In the near term, at least, securing supplychains should not come at the expense of preventing disruption in the cleanenergy supply chain.

As noted above, projected NdFeB demand from EVsand wind alone appears to outstrip expected supply by 2025 or perhaps evenearlier, especially if China cannot sufficiently increase its capacity onhigh-performance magnets in the near term.

On the face of it, China utterly dominatesNdFeB magnets production. Between 2010 and 2019, China’s output grew by 118% ata CAGR of 9% (see Figure 13). But China is not exporting the vast majority ofits domestic production. As of 2020, China 36,000 tons of NdFeB magnets, justabout one-fifth of the magnets it produced domestically.

Instead, China is limiting exports becausedomestic consumption of magnets is likely to skyrocket as EV and wind poweradoption picks up steam in the China market."

https://macropolo.org/analysis/permanent-magnets-case-study-industry-chinese-production-supply/

Summary of my thoughts

• Any additional refined REE supply must come from LYC for the next 3 years. The supply problem will take much longer to actual come into balance, even if today the industry committed billions upon billions of dollars to solving.
• EVs / wind's emerging and nuanced preferences for high density PM magnet motors is quickly combining to create fierce competition for limited supply, backed by the long term thematic of green energy transition.
• There is a race to bring new supply online outside of China, even if no geopolitical issues materialise, Chinese production may not be in a position to meet Western demand.

As always DYOR! this is not financial advice or a recommendation! Just my personal thought which may be interesting... or not haha. Do point out anything I missed, or challenge any incorrect assumptions. Best way to learn more!