oncoming supply- the paper tiger

With Lynas being fully funded through Phase Two (22,000tpa) when Sojitz closes and with Mt. Weld producing concentrate first week in March we now can begin to see that the potential competition in this rare earth space is mostly paper tigers. NC alluded to this fact when he said on the second call's Q&A 'just looking at economics, we currently see no compelling projects in North America.' Now, I think he means that he saw nothing Lynas would be interested in. But he prefaced the comment by saying "irregardless of geography" so perhaps he meant the evaluation in a harsher sense.
I know you have heard of oncoming supply and you have seen the calculations of all of the "advanced" projects out there and how much they will produce in the near future. I believe there is a reason Lynas' presentation only counts Molycorp as future 2014 production. I am convinced that very little production is coming outside of Lynas. And I think Molycorp is much further away than any "experts" realize.
The reason is simple. This is a small industry and I believe most of the analysts are fools. The only experts seem to be the experienced rare earth company teams. And even there, very few of the teams have enough practical experience in the rare earth industry to have much credibility. Sure I am not more experienced than them and I mean no arrogance by my evaluation. But the fact is the analyst/experts have not been right about a single fact in months or years. I am tired of listening to paid consultants that are an endless stream of contradictions when I Google them. I am also tired of waiting for their prophecies to come true when all I have is inaccuracies in the present from which to judge them. An analyst is only as good as his or her analysis, and none of the analysts have shown me more insight than any private investors. And in fact, our own prior experiences as armature investors on this board are proving more accurate than the so called experts in the articles and videos I search through. So here is my traders analysis of the stocks of the oncoming supply.
I think a real tell happened when the WSJ talked about China's Vancouver "Going to the Buy Side" paper and there was little reaction in the overall prices of the rare earth space. The news was not news to the current investors. But the fact that it didn't bring many new traders into the space is important. It tells us companies need to be more fundamental. Many of the junior business models not only rely on high rare earth prices, but will also require a market that has enough investors to buy up the share issuances. But the hype that was making many of the junior stories economical is starting to dry up. If these projects can't get a continually increasing investment from shareholders until production this funding method will drop off. That would leave debt as the main project funding source.
If companies take on debt this far from earnings, they may not be able to roll it over in the future. But any debt analysis also requires the investor to put his or her banker hat on and ask would you loan to this company? Such thoughts should take some froth out of the space and concentrate everyone on fundamentals a little more. It is a bigger cut than many realize right now. Projects like Bear Lodge have already been passed over several times in their history. And when you here about 1% TREO projects near the Arctic Circle needing a billion dollars I can?t see a banker taking these risks. And can you picture selling Stans energy's story to a banker? If so, have you talked to a banker since the global financial crisis?
Bottom line: money is not free. Everyone knows that. But in the hype of the rare earth trade, some will lose sight of this fact. All the same, this reality will never go away and it will come back to crush the naive juniors. It always does regardless of the commodity or product.
Those companies who have cash on the balance sheet and are the furthest funded into the future will survive. This is a big reason why the best buy now is Lynas. It is the only fundamental pick in the space. When Sojitz becomes a completed deal by March 31, 2011, Lynas will have a solid bridge to earnings and a reliable forward PE. This is what will matter throughout 2011.
Our $4 party is not far away, put it will likely come from predictable earnings, not massive investors piling blindly into this rare earth investing space. This also means when LYC is $4 it will be worth $4. It won't be time to sell, only to celebrate. That's MO.