First a few notes from the Qly call about the RE market. NRE...

First a few notes from the Qly call about the RE market. NRE and Lynas remain the only profitable businesses at current prices. Current NdPr price is low-mid US$50s, somewhat above the figure for last Q used below. Finally to quote AL there will be “inevitable future improvements in the market”.

It’s a good time for a few back-of-envelope calculations of EBITA. Based on current realities and a couple of future production/price scenarios. Just the NdPr stuff for simplicity so the estimates are conservative.

From the Q’ly we currently have COP A$90m including admin and royalties. Average NdPr price about US$48 = A$72/kg or A$72k/ton and NdPr production of 1680t.

So (roughly) current EBITA = Price x Volume- COP = 72000 x1680 – 90,000,000 = A$31m/Q.

That’s a reasonably good match for the financials (p9) Receipts – COP = $37m but a bit on the conservative side as it includes NdPr only.

Now assume the planned production increase to around 10ktpa or 2.5kt per Q. That’s a 50% increase and if COP increases proportionally we get EBITA = $45m/Q.

Finally assume a NdPr price of US$80/kg. Regarded by many as a ‘sweet spot’ where returns are reasonable for both suppliers and magnet makers. (Most startups have about US$100 as a base price assumption.)

Here the income scales up without any COP increase giving:

EBITA* = 120,000 x 2,500 – 90,000,000 = A$210m/Q or A$800mpa.

On that basis a 20x p/e ratio would give an enterprise value of $16bn or $17 per share or thereabouts.

But note on that same basis the EV per share in the 1^st 2 scenarios is about $2.50 or $3.60 per share respectively while a NdPr price of US$60/kg and expanded production would support the current $7.50 share price.

My take on all of that; the current sp is based on a moderately higher NdPr price than the prevailing, but that there’s serious potential upside assuming production expands as planned and moderate price recovery occurs.