START
While $45b of REO sits in the ground
Investment Highlights
The key point of today’s September Quarter report is that although LYC received its Temporary Operating License (TOL) on 5 September, after an extensive and rigorous scientific and engineering assessment that the LAMP met or exceeded all international and Malaysian standards, Lynas cannot begin operating the LAMP in Malaysia because a court-ordered injunction that was sought by the SMSL protest group. The court decision is pending, with an announcement expected on 8 November.
A court decision was originally expected 4 October, then postponed to 10 October, and then again further postponed until the 8 November. In the meantime an interim order has been placed on the TOL, in effect stopping LYC from starting operations at the LAMP.
We now expect first feed to kiln at the end of November, and with a 2 month cycle time, expect first product shipments at the end of January 2013.
Phase 1 of the LAMP is ready for first feed to the kiln and Phase 2 of the LAMP remains on time and on budget, with completion expected in 1Q2013. Construction of Phase 2 is 70% complete.
LYC spent $78m in cash in the last quarter and has a cash position of $126m at the end of the quarter, of which $52.8m is restricted for Phase 2 construction and $79m is unrestricted.
Meanwhile LYC has updated the mine plan at Mt Weld and has announced a significant reserve upgrade. The new Ore Reserves now total 9.7Mt at an average grade of 11.7% REO, an increase of 362%. This represents a total of 1.14Mt of contained REO.
These increased Reserves will provide the basis for expanded operations at Mount Weld and give the site more than 25 years of mines life. At $40/kg, the contained REO is worth a staggering $45B.
The community opposition seems to have diminished over the past few months with the main protest group, SMSL, now facing a more local opposition of its own.
The courts are faced with deciding between fear and science. We expect science will win in the end.
LYC now trades as if it were TOL-free, and accordingly we maintain our BUY recommendation with a price target of $2.44 per share.
END
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