Stock held down, page-24

You have said this often and several times i have asked you what you feel a fair price is and why. Simple reason good news will send a undervalued stock up fast and hard. Good news will not do much for an overvalued stock. Some may rush in but it never will hold this is typical of lynas. I feel That for the next year or two Lynas is overvalued. Now before I start I will agree that Lynas is doing everything correct right now. I like the 2025 plan. So this is not a question of what it may be worth in future but what does the next couple of years look like.

For me there are three primary things to look at. First is profits and this accounts for over 50% of my decision making. Secound is cash and this is probably 40% and last is book value.
Profits for next few years, all i see is negative profits. AL has told us we need about USD 35.00 for Lynas to break even Prices today are 263.5 RMB / KG or USD 32.75 no vat. They will never have profits till this price improves and I do not see demand rising for at least 6 months maybe 2 years. Next is PDF this is 400M ringgits over the next couple of years It is to hold old wast so no CAP EX so this hits Profits and cash MYR / AUD is 2.84 is AUD 140.8M total right off bottom line of both Profits and cash over the next several years. Last is Malaysian C&L depreciation Now on page 8 of Q2 activities report they talk about what Depreciation will be this year I calculate it will be about 17~ 18M Aud a year till 2024. Another big hit to profits. About half of what they made operationally in 2019.

Cash and cash flow. will be negative for this and the next couple of years excepting borrowing, leasing of now owned equipment if they do lease it will raise manufacturing expense. A stock sale could also be used to raise cash but I doubt they will do this. Now the 2025 pln was forcasted to be AUD 500M or about 100M a year. See PG 65. Currently they need about 40M for day to day operation they have 120 M cash on hand. So that's 80 M where does the rest come from Operations at today prices are not viable. So expect outside cash to be needed. The PDF I think was more than they expected. The Blueline now looks like it will recieve USD 40 M from US gov. I have no idea if these offset but for right now I will use the AUD 500M on page 65. We will probably have a little better idea with the 2020 AR but will need the 2021 SAR and AR to know for sure.

Book Value. the PDF and C&L depreciation will come off book value reducing value by close to AUD 150M. The cash from borrowing increases cash adding to book value but the debt itself is subtracted so no change. As that money is spent (except for PDF) it is cap EX so cash decreases but plant and equipment increases so again no change. Because of C&L and PDF book value per share is going down.

My guess is NdPr has to be in the USD 45 no vat range before revenue can overcome these negatives. Till then i expect SP to just drift with occasional pops in both directions on news. I expect size of negative cash flow for Q4 to be a larger than expected and move SP down. It will not recover unless a good recovery in NDPR which I just do not see without a firm recovery in auto industry. I expect 2020 AR to show bigger than expected profit drop and headlines that say Lynas goes from making 80 M in 2019 to losing XXX in 2020 will be very bad for SP.

So that is my explanation why good news never seems to last. It will not till there is a firm recovery in REO prices. Both rate and value will be important. A rise to USD 40 in six months will do far more for SP than a rise to $45 over 18 months. Until i see monthly auto sales at 85% of the 2019 monthly rate in US and China. I do not think we will see much improvement, But I will be watching and will change my opinion quickly if anything happens.