LYC (ASX) Q2 thoughts.

Originally posted by ContraryJ ↑

The Q report is much better than I expected. Wish I had held off selling but oh well better to lock in 30% than gamble for 40%. To those that have large holdings you should be watching REE prices carefully the future direction of Lynas SP is very dependent on REE prices. The stock will go down if prices do not rise 10% quickly.

Congratulations on the first unqualified positive cash flow. Cash Q to Q went up, $0.843M. Can we expect it to go up next Q? Highly unlikely. Next Q Amanda says G& A will go up by 6M. Two principle components of this are loan interest. AU $5.4M and yearly insurance payment $1.8M this is more than 6M so there may be unmentioned savings. Amanda says the new mining campaign will cost 3M so let’s assume 1.5 M / Q increase in production. Using just AL numbers we can expect 7.5M of increase to cash outflow in Q1. Without price increases this will be concerning.

ASP went up more than I expected more than a few posters on this board expected because of the carryover of some unshipped La and Ce from Q1. AL made a statement that was encouraging but careful examination raises some questions about the future. “RECORD PRODUCTION: NdPr production, at 1,331 tones for the quarter, reached design rates” Reached design rates indicates we should not expect to see much more income growth from NdPr without price increases. There may be some increased production because plants can be pushed beyond design rates but that will cost. 1.3 KT is 5 KT a year. From TMR we know that there is about 22.6 % NdPr in mount Weld. To obtain 5 KT they need to process about 22.5 KT of REE so they are already near their max. Yes they can go higher it has been pointed out the kilns are running more than 150% of design and in fact they have one of 4 totally shut down and one as a warm standby. All it takes is one bottle neck to limit production, SX lines?
The new mining campaign is not the overburden removal and widening of the pit that is so needed. That in Q2 2016 we were told would be started by now!!! It is an expansion deeper into lower grade ore. AL says this clearly but it is scattered over 3 different sections. We are clearly told it will be lower grade ore, we are not told what makes it lower grade so to know how many tons will have to be processed to yield 5 KT / yr of NdPr is unknown. Also Nd Pr has been running at about 30% to 31% of total production. This Q it was 1331 T of a total of 3913. Or 34%. Mount weld contains 23% NdPr, this difference raises concerns especially with the change to mining lower grade ore. What is the sustainability of current NdPr production?
“However, this is a saving we will only make on this campaign. Now that we have reached design production rates, we will start to run more consistent and frequent mining campaigns. Future campaigns will require pit extension and thus will be more costly.” AL
This is an interesting statement. I am 100% certain that it is correct for Lynas to go deeper now. It does raise the question why spend $3M to get a years’ worth of what we are told is inferior ore.
“We have been able to delay this significant expense by developing the capability to use large quantities of the lower grade Li ore, which was originally considered to be unprocessable.” AL
The only explanation I can come up with is that without major REE price increases they will be out of cash in 12 months or less. That when Lynas does there cash flow analyst for the next 12 months they just do not have the cash to expand the pit the way they should. I welcome different views and would like to hear them.

This is not doom and gloom With a price increase of 10% of ASP ( $2.00 KG) they will have $8M /Q increased revenue without production or product changes. Just remember that price changes to La and CE have to be 100% to 200% to have a 10 % change in ASP. Any drop in NdPr production would have a very negative effect on ASP and revenue.

One of the most important things for the next few months is the options that MT K has on 174 M shares at 0.038 a share. At a SP of 0.10 they have a nice gain and it may be worth trading. On the positive side this adds over 6.6 M to Lynas current free cash of $8.5M adding 1 possibly 2 or 3 Qs before they have problems. The other side of the coin is Mt K is probably more knowledgeable than any other stock holder about Lynas situation and for them to cash out any shares in the 10 cent range MIGHT be an indication of their thinking. MT K can be the white knight by executing these share and the 349 M shares at 0.05. The second set would inject 17.8M, total for both 24M of needed cash without writing yet another new deal. These funds with modest REE Price increases could carry Lynas for an additional 5 to 8 Qs or longer while yielding Mt K some real income on there investment.

Even with this news I only sold some of my Dy today at $0.06. Still have some. I really thought this would get me out entirely. Far more shares traded than I am offering but with pink sheet trading nothing ever makes sense. All the CF was gone last week.

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CJ, do you think we could just have a moment to enjoy yesterdays ann, before you start disparaging the next qtr? Damn!

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(20min delay)
Last $10.14		Change 0.015(0.15%)		Mkt cap ! $9.494B

Open	High	Low	Value	Volume
$10.14	$10.25	$10.02	$50.89M	5.014M

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