timing of tol / re pricing notes

It is in the government's best interest to prove that LAMP is safe prior to the general election. The best way to do this is to actually have the LAMP up and running for a few months (at least) prior to the election. For this reason, and consistent with MOSTI's public comments, I think the TOL will be issued as soon as the minister feels due consideration has been given to the comments made by the anti-lynas groups on the April 17 meeting. It is not in the government's political interest to delay the decision one day longer than it has to.

Some posters have tried to link the TOL with the outcome of the PSC at the end of June. I think this is a tempting but false inference. The PSC is tasked only with informing the public about the LAMP. The government has repeatedly stated that the work of the PSC has no bearing on the TOL. I think we should take them at their word on this point.

Liz Whiteway (LYC management/investor relations) has informed me that a LYC lawyer was present during most (but not all) of the April 17 meeting. According to this lawyer, no new objections were raised by the anti-lynas groups during that meeting. Given that the minister is not dealing with any new information, and given the political argument outlined above, I think the balance of probabilities favours the TOL being issued this month and not next month. Indeed, there is no obvious reason that I'm aware of why the TOL cannot be issued in a matter of days.

On another matter, I think it is worth noting that most analysts have calculated their NPVs for LYC assuming the long term Mt Weld basket price is around $40. Thus, assuming $40/kg, most analysts value LYC post TOL at between $2.30 and $2.90. I think the fact that the Chinese domestic price is now edging up above $40 indicates that, despite recent FOB price falls, this $40 assumption is still conservative. Chinese domestic prices have been edging up over the last few months because of two main factors: (1) modest demand increases (after price induced demand destruction last year), and (2) the flow through of initial production cost increases due to new environmental regulations (these environment-related production costs, which analysts have largely ignored in their long term pricing assumptions, will increase further over the medium term).

All RE observers (myself included) expect the domestic and FOB price differential to continue to narrow. However, it is worth keeping in mind that Chinese export taxes mean that the FOB price cannot fall below a 40% premium to the domestic price. Thus, assuming a long term domestic price of $40, this suggests the FOB price will be closer to $55, and not $40. Adopting consensus analysts metrics, a $55 long term basket price values LYC close to $4 post TOL.