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Q3 2017 Lynas Corp Ltd Earnings Call
Sydney, New South Wales May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Lynas Corp Ltd earnings conference call or presentation Tuesday, May 2, 2017 at 10:59:00am GMT
TEXT version of Transcript
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Corporate Participants
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* Amanda M. Lacaze
Lynas Corporation Limited - CEO, MD and Executive Director
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Conference Call Participants
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* William Canty
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Presentation
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William Canty, [1]
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Hello, and welcome. Today, I'm speaking with Amanda Lacaze, the Managing Director of Lynas Corporation Limited. Hi, Amanda.
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Amanda M. Lacaze, Lynas Corporation Limited - CEO, MD and Executive Director [2]
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Hi, Will.
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Questions and Answers
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William Canty, [1]
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Amanda, Lynas has released a strong quarterly. The company has achieved record production, sales and cash flows. Can you talk me through the result highlights, including the key drivers?
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Amanda M. Lacaze, Lynas Corporation Limited - CEO, MD and Executive Director [2]
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Will, I think many of the people who are watching this video will actually have read our results, so they will know some of the high points, but I'm pretty pleased with them. So I'm really happy to go through them again. We delivered record positive cash flow this month. It was over $11 million from operating and investing activities, which is just a definitional thing. That was off the back of very strong operational performance, our second quarter in a row where NdPr production was above design rates at the LAMP. All right first-time materials, so very easy to sell in a timely fashion, as well as that we've got an improving quality on a number of our other products. And the other thing that I've been saying to all of our shareholders for some time is that we are highly leveraged to any increases in market price, particularly for NdPr. And in this quarter, we did see some firming of the market price, and I'm really pleased that exactly what we've said has happened, and that's fallen to the bottom line and given us a much better result.
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William Canty, [3]
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Amanda, the market pricing of NdPr looks to have picked up during the quarter. What market forces are driving these changes, and where to from here?
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Amanda M. Lacaze, Lynas Corporation Limited - CEO, MD and Executive Director [4]
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Yes. So I think everybody knows that the rare earths market is always quite difficult. It's relatively opaque at times. In my view, it's just highly dysfunctional. The connection between supply and demand is -- and price is not as clear as it is in some other markets, and part of that is because of the concentration within the Chinese market. In fact, we are the only non-Chinese miner and processor. And I guess I should have said this in answer to the first question, we now are very clearly the second largest producer of this material in the world. And because the largest producer consumes a lot in their own downstream operations, we are actually the largest supplier to the free market. So that was actually a really great milestone for us to achieve. So the things which have changed the pricing have been activities which are inside China. So the China central government has been much more active in enforcing local environmental requirements in inspecting rare earths plants and in shutting down those which either don't meet the requirements or are actually operating illegally. So that has been positive for us, and that activity continues. So the China government has talked about this for some time and has provided very clear indications to operators in China that they're going to do it. In the last couple of quarters, we have seen real action associated with this. So that's been beneficial. The other thing is that Northern Rare Earths inside China, who publishes a list price, actually have been gradually lifting the price. So I'm -- we, as a business, are optimistic that this gradual firming of price will continue. And whilst at times, it might be, gee wouldn't it be nice if it jumped, we feel that the small steps and the gradual firming give it more chance of actually sticking, which ultimately is very good for our business.

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William Canty, [5]
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Amanda, Lynas has conducted its first mining campaign since 2008. How is it going? And are you pleased with the result to date?
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Amanda M. Lacaze, Lynas Corporation Limited - CEO, MD and Executive Director [6]
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Yes, this is like so cool, all right? This is so cool. So Lynas, we have the best ore body -- developed ore body in the world. The material which is coming out, most people who operate rare earths mines would be crying over the quality of the material because it's so good. We have it stockpiled into high, which is over 24%; medium, which is 18% to 24%; and low, which is less than 18%. We actually had someone come out to do a tour, and he said, "No, no, you should be calling that high, very high and ultra high." So it's -- I've been CEO of Lynas for 2.5 years. And as you mentioned, the first mining campaign at Mount Weld was in 2008. There was a lot of material mined, it's been on stockpiles and we've been drawing down on that material. So the result is that our mine, which is a relatively small open-cut mine, had silted up and there was water in it and all of those sorts of things and some growth of flora. And I sort of said it looked a bit like an archaeological artifact. But I went out there in February as we were starting the mining activity and, of course, we had to dewater it and we cleaned it all up. And because this mining campaign is just a depth extension of the existing mine, I actually have to say, and I'm not a geologist, even I could see the material and the difference between the material which carries rare earths and that which doesn't. And it's a low-cost campaign this time and the reason why is it's so easy for us to retrieve this material. So we basically have a ripper goes over the ground, and then we have the end-loader that digs it up, puts it on a truck and actually it drives up and then puts it on our stockpile. So it's very exciting to see it. As I said, this is a very -- this is a low-cost campaign because we are just doing the depth extension. Our next campaign, we will actually extend the mine, and that will require us to blast and to remove overburden, so it will be more expensive. And we expect to be starting that in about December this year.
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William Canty, [7]
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So what's next? What does the remainder of the year look like given the strong start to date? And what are your key areas of focus for the final quarter of the financial year?
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Amanda M. Lacaze, Lynas Corporation Limited - CEO, MD and Executive Director [8]
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Well, as I said, we're cautiously optimistic about the price continuing to improve. Certainly, having now hit just above design rates for NdPr, we expect to be able to sustain at those levels, but we won't be taking another step. It's certainly not in this financial year. The team is doing a lot of work on understanding constraints and bottlenecks, so to see what are the things that we could do which would allow us to continue to improve our production performance. We are also very focused on the non-NdPr products and improving the quality of those. And in some ways, they're a little bit more challenging because it's -- they are much more specified materials. And I always say this is important for everyone to remember, we are not a commodity business. Materials are specified even when we might have 2 customers who use a material in the same market. So for example, a catalyst market, they will each have a slightly different specification. So we're now learning, having got our big factory working for big bulk production, we're now learning to do some smaller bespoke manufacturing as well. The team is very focused. After all of the heavy-lifting over the last couple of years, we're enjoying making money. We just like to make some more. And so we will continue to be disciplined in our approach and continue to work hard, too. We like a trend where every quarter is better than the last one.
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William Canty, [9]
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Amanda, thank you for your comments and insights, and I look forward to speaking with you again.
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Amanda M. Lacaze, Lynas Corporation Limited - CEO, MD and Executive Director [10]
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Thanks, Will.