stjohnc

My thesis is that the Lynas conversion of bonds and exercise of warrants should make no difference to the share price all other things being equal. Consider the following:

Say a shop has 1,000 widgets on offer and supply and demand dictates their price at say $2 each. Now say that people come to realize that there are another 1,000 widgets more in the warehouse that could be released to the shop at any time – but no one knows when for sure but it’s probably soon. Accordingly people are only prepared to pay $1 each per widget. That is the price whether or not the widgets are actually released from the warehouse – It is only known that they will be released “soon”. When the widgets are actually released, the price is still $1 each - why should the price take a second fall? i.e. Today’s price is already baked into tomorrows’ price, all other things being equal.

Similarly, todays’ Lynas share price already takes into account the fact that a certain number of additional shares will be issued on conversion of the bonds and exercise of warrants. This thesis is supported by the fact that 504,444,440 shares issued by the latest conversion tranche today has not much effected the share price. So the actual catalysts of the Lynas share price is due to other factors such as product pricing, short term manipulation and other motives - possibly including a party interested in a takeover.

Takeover is particularly interesting because there are many possible motives in this situation. Examples are securing product supply by an end user, price competitive advantage of unique and significant ex-Chinese supply, protection of Chinese interests, a (possibly expert insider) realization that the operation will become highly profitable and worth much more than today’s share price – the list goes on. A large number of newly issued shares becoming available presents a great smoke screen opportunity to make a raid without attracting too much attention in the preparatory stages. Lynas has arguably the best RE resource in the world, plus – probably the key - a multi-million dollar successfully operating processing plant and expertise. This is impossible to replicate within a reasonable time and cost.

Watch for many large cross-trades in the following days.