Hi bythebay.I follow your numbers and largly agree with where...

Hi bythebay.

I follow your numbers and largly agree with where they come from. However I am valuing Lynas using a NPV of DCF to arrive at todays value. On a DCF 10 the US$425m for year end 2014 is only worth about A$370m today (i also knock out $20m for admin and general costs). For a value today it's normal to use a DCF model. For the $25 basket at 1.20 USDAUD I get A$1.62. A pretty good potential return but it does ask a lot of the basket price. I wonder just how price tolerant the various end uses are. The fixed gear wind turbine being a good example. If Neodymium becomes too expensive they will simply stick with current models. This price sensitivity is almost impossible to guess as end users are reluctant to let any of us know the amounts used in any one process.

For the purpose of your valuation, I would say using 10 times future cashflow is a pretty keen measure for any developing miner. That's just my own valuation method, I prefer to be a miserable scrooge :-)

FWIW if anyone else is interested the DCF I use is based on production at 11,000 end 2012, 16500 end 2013, 22000 end 2014 and the same through 2021. I don't push the model out past 10 years.

At USDAUD 1.20 the following numbers come out.

Basket price USD /NPVps AUD

$10.00 / $0.31
$12.50 / $0.52
$15.00 / $0.74
$20.00 / $1.18
$25.00 / $1.62
$30.00 / $2.06
$35.00 / $2.49

If a twenty year model is your bag then I've popped them in quickly

$10.00 / $0.44
$12.50 / $0.76
$15.00 / $1.07
$20.00 / $1.69
$25.00 / $2.32
$30.00 / $2.95
$35.00 / $3.57

So if you believe that a long term basket price of $25 is sustainable over twenty years and you think they can keep the costs in line then the correct value today should be A$2.32. Arguably Lynas is pretty cheap if you have some rose tinted specs. Based on todays basket price and exchange rate it's a little over valued.

Happy new year and be carefull out there.