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Share Watch – 29 August 2021

Share Watch –  Lynas Rare Earths (ASX:LYC)

Lynas’ boss, Amanda Lacaze has toasted buoyant demand conditions in the rare earths market, saying governments outside Japan are opening their eyes to the need to source critical minerals outside the Chinese supply chain.

The company posted a record $157.1 million profit this week, more than 900% up on last years’ $19.4m loss, with record sales in the June Quarter helping to drive a 60% jump in revenue to $489m.

Lynas closed the year with $680.8m in cash, up from $101.7m as of June 30, 2020, after a $425m equity raising and a rise in EBITDA from $59.7m to $235.3m during the financial year.

That was driven by super strong market conditions that have the company looking at how it can fast track expansion efforts that form part of its Lynas 2025 program, with new processing facilities in Kalgoorlie in WA and in the USA in development.

“The bounce back in 2021 from the effects of 2020 has been quite extraordinary as we look at global vehicle sales, demand from electric vehicle sales, all of these are very much feeding demand which in turn is feeding into the price,” Lacaze told analysts on a conference call today.

“Even in our catalyst segments we’re back to pre-covid demand levels.

“2021 saw for the first time I think governments other than the Japanese government really taking action as far as supply chain resilience and supply chain diversity is concerned in the sector.

“There’s been quite a lot of rhetoric on it over many years, but as you look through, certainly … you will see that it’s now being backed with some serious action, whether it’s policy or financial to really fund the development of a much healthier, much more dynamic outside China market for rare earths and I think this will be good for everybody including our other participants in the market that operate within the Chinese market.

“We are looking at demand, we are looking at returns, they are very favourable and we really need to step up and ensure that we can meet the demand in the market.”

That could open the door for new players, some backed by government support and investment, to enter the market as miners or even processors and refiners, something actively being pursued by mineral sands miner Iluka Resources (ASX:ILU) at is Eneabba project in WA.

Lacaze warned other players against over investing in the market to chase the current boom, urging the government and industry to coordinate efforts to build a local supply chain.

“Isn’t it great that we have a market that demand is so strong and forecast growth is so strong that people might want to invest in developing this market,” she said.

“The more investment you have, the more innovation you have, the more activity you have, the healthier your market is.

“I think that is a terrific outlook for industry. On the other hand we certainly operate and some of the prospective projects operate in a stage of the value chain which is very capital intensive.

“A capital overbuild when we are competing with a planned and well executed industrial strategy is probably not going to have a really happy ending for a lot of people.”

Lynas is making a pitch to be a central processing hub or industrial centre around its upcoming Kalgoorlie plant, which is undergoing government approvals at the moment and which on the face of it could bear similarities to the early days of the nickel industry and the birth of the Kalgoorlie Nickel Smelter under Western Mining (now BHP) back in the 1970s.

“It is for this reason we have often presented and promoted the concept of Kalgoorlie becoming a real hub for rare earths processing, it’s the reason why we continue to engage with prospective providers of third party material that could be processed through this facility,” she said. “We will continue to do so and certainly I think that we should be looking for efficiencies.

“We’re talking to the government about creating an environment in which we can be successful, so infrastructure and utilities that facilitate the best outcomes.

“Certainly I think we should be looking to make sure we don’t have unnecessary overbuild and where it is relevant to have shared facilities or co-located facilities even.”

Financial indicators

The VIX fear gauge down by 2.17 points since 22 August to 16.39.

The Dow Jones Industrial Average up 335.72 points or 0.96% since 22 August to 35,455.80, the STOXX 600 up 3.54 points or 0.76% to 472.34 and the Shanghai Composite index up 94.83 points or 2.77% to 3,522.16.

Gold up to 1,820.50. US 10-year Treasury Bonds up to 1.314 and oil up to 68.67. Cryptos Bitcoin down by 730 points or 1.50% to 47,922.

ASX 200 up 27.40 points or 0.37% since 22 August to 7,488.30. The Aussie dollar up to 73.12 US cents.

Carbon Market Spot Prices

LGC $34.75                                                                 STC $38.90

ESC $38.40                                                                 VEEC $72.50

ACCU $23.10                                                              EU ETS €56.86 (down €3.36 this week)

NZU $NZ51.10 (up $1.35 this week)                            UK ETS GBP49.20 (down 2.16 this week)

Sources: RenewEconomy, demandmanager,  Reuters, SMH, Market Watch, Ieta, Stockhead

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