Lynas Corporation (ASX:LYC)

QUOTE AND NEWS
The Australian  Oct 26  Comment 
Japan Inc and US bondholders have again come to the rescue of rare earths producer Lynas.
The Australian  Oct 26  Comment 
Lynas directors are racing to keep the company afloat amid a continued downturn in prices of rare earths.
WA Business News  Oct 6  Comment 
Pilbara Minerals plans to explore its Pilgangoora lithium portfolio with the acquisition of Dakota Minerals’s Lynas Find project for up to $8 million.
WA Business News  Oct 6  Comment 
The Australian  Sep 29  Comment 
Lynas is staring into the abyss, with its auditor warning of ‘material uncertainty’ over the rare-earths miner.
The Australian  Sep 28  Comment 
The struggling miner has narrowed losses but flagged debt renegotiations amid ongoing weakness in rare earth prices.
The Australian  Jul 17  Comment 
Rare earths miner Lynas has reported record quarterly sales as higher production offset continued low prices.
The Australian  May 29  Comment 
Lenders to struggling rare earths miner Lynas have agreed to postpone looming payments until December.
The Australian  May 16  Comment 
It has almost been two years since Amanda Lacaze moved to Malaysia to run troubled rare earths company Lynas.




 
TOP CONTRIBUTORS


Lynas owns the Mt. Weld Rare Earths deposit at Mt. Weld in Western Australia. The company is developing a mine with concentrating facilities on site and a remote Advanced Materials Plant for processing of the concentrates in Kuantan, Malaysia. The Mt. Weld ore contains the rare earth metals Lanthanum, Cerium, Praseodymium, Neodymium, Samarium, Dysprosium, Europium and Terbium. Rare earth metals are used in battery alloys, magnets, catalysts, polishing powder, phosphors, glass, ceramics and other applications. The supply is dominated by China and the metals play an increasing role in energy saving technology and in computers and consumer electronics[1]. On February 10, 2009 the company announced to propose suspension of the Mt. Weld project due to a dispute with bond holders on the release of required funding.[2] The ASX company fact sheet may be checked for further updates.[3]


Company Overview

Business and Financial Metrics

Lynas is reporting according to AASB and IFRS. Reporting currency is Australian Dollar and the fiscal year is from 1st July to 30st June. The company is an emerging miner in the phase of capital raising and investing. First regular revenues are expected after commissioning of the mine and the processing plant in 2010 (second half of fiscal year 2010). Total cost for the Mt. Weld mine is estimated to 115 million AUD of which 33 million AUD were already spent end of November 2008. The cost of the Malaysian plant is estimated to 279 million USD of which 66 million USD were spent in November 2008. The estimated completion cost of 82 AUD and 213 USD seems to match funding available from equity, convertible notes and secured long term loans.[4] [5]


Business Segments

Mining and Concentrating

Mt Weld rare earths oxide (REO) deposit known as the ‘Central Lanthanide Deposit’ (CLD) is one of the world’s richest rare earths ore body. 2004 JORC compliant resources for the Mt. Weld rare earths project are at 2.5% REO cut-of (metric tonnes)[6]

Category Million Tonnes REO Grade % (000) t REO
Measured 2.21 14.7 324
Indicated 3.84 11.5 441
Inferred 6.19 6.8 418
Total 12.24 9.7 1,184

The commissioning of the concentration plant is planned for June 2009. Concentrates will be railed to Perth and then shipped to Kuantan. Within the CLD there is a Southern Zone with a higher share of heavy rare earth elements which is subject of a separate feasibility study regarding the processing of the ore. Close to the CLD area is the Crown Polymetallic Resource with rare earth elements, niobium and phosphate. Lynas aquired a further rare earth deposit in Malawi in 2007[7].

Materials Processing

Lynas decided to erect the materials processing plant in Malaysia. Kuantan is offering all required industrial infrastructure including port facilities, supply of chemicals and a skilled local labor force. The location provides a competitive advantage in comparison to a Chinese location by offering a completely independent and political stable supply in the global markets. The initial capacity of the processing plant is planned with 10,500 metric tonnes of rare earth oxides. Commissioning of the plant is planned for 3rd quarter 2011 with production starting in 3rd quarter 2011. Ramp up plans cover the production of lanthanum and cerium carbonates, didymium (a mix of neodymium and praseodymium oxide) and SEG (a mix of samarium, europium, gadolinium and other heavy rare earth element carbonates). Lynas is planning to expand the plants capacity to 21,000 metric tonnes of rare earth oxides. It is also planned to implement the split of didymium into the 2 different oxides with this capacity expansion. Several supply contracts with customers have been signed already to sell the products[8].

Key Trends and Forces

Growth in Technology Applications and Cleantech

Rare Earth Elements are used in many products which have been developed during the past 2 decades.

Rare Earth ApplicationElementsDemand 2008Projected Demand 2012Average Annual GrowthGrowth Drivers
MagnetsNd, Pr, Dy, Tb, Sm25,600 t36,500 t9.3%
  • Hybrid vehicle electric motors
  • Electronic power steering
  • Hard disk drives
  • Other small electric motors
  • Air-conditioners
PhosphorsEu, Tb, Y6,700 t10,300 t11.4%
  • Energy-efficient lights
  • Plasma TVs and displays
  • LCD TVs and monitors
Metal AlloysLa, Nd, Ce25,000 t50,300 t19.1%
  • Hybrid vehicle batteries (NiMH)
  • Rechargeable batteries
  • Steel and special alloys
Auto CatalysisLa, Ce7,200 t10,500 t9.9%
  • Gasoline and diesel fuel additives
  • Global tightening of automotive emission standards
Fluid Cracking CatalysisCe, La, Nd17,800 t22,100 t5.6%
  • Oil production
  • Increased use for sour oils
Glass and Ceramic Additives Ce, La, Nd, Er, Gd, Yb17,900 t19,300 t1.9%
  • CRT TV glass
  • UV cut glass
  • Optical glass
  • Fibre optics
Polishing PowdersCe, La, Pr14,000 t20,600 t10.1%
  • LCD TVs and monitors
  • Plasma TVs and displays
  • Silicon wafers and electronics
Others 10,200 t13,900 t8.0%
  • Lasers and capacitors
  • Pharmaceuticals
  • Water treatment
  • Various other applications
Total 124,400 t183,500 t10.2%

The table summarises the use and application of rare earth metals and shows a projection of recent growth into 2012 demand[9][8]. An overview of the traded Rare Earth products is shown on the Rare Earths information center of American Elements[10]. The American USGS and NAS identified the rare earth metals as a critical resource for high technology[11][12]. Jack Lifton is describing the importance of rare earth metals in the electrification of vehicles.[13] A more dramatic description of the situation can be found at [14].

Chinese Market Regulations

Unregulated mining activities and blind expansion of smelter capacity lead to an oversupply of the markets since 1998. Chinese authorities started to introduce a series of protective policies with the intention to stop oversupply, improve market prices and to back up further processing of the materials to higher value products within the country. The new regulations include[15]

  • export quotas which have been decreasing each year and were 43,574 tonnes in 2007
  • export duties of 10% on oxides, salt products and some of the metals
  • a prohibition for foreign companies to establish mining or smelting activities and an encouraging to invest in downstream processing
  • rectifying of unregulated and scattered activities by controlling the mine sources

A further decrease of Chinese export quotas for 2009 was communicated by Lynas[16].

Competition

Since the end of the Mountain Pass era in the mid 1980's the market is dominated by Chinese supply. Main market players are Baotou, Gansu Rare Earth Group Co. Ltd, and Sichuan Rare Earth Group. Molycorp Minerals LLC is planning to restart the US based Mountain Pass mine after aquisition of the deposit from Chevron in 2008. Arafura Resources Ltd is developing the Nolans deposit in Australia and the company announced in 2008 a cooperation with Incitec Pivot Ltd for the chemical processing of the materials. Avalon Ventures is developing the Canadian Thor Lake deposit. Great Western Minerals Group is developing Rare Earth deposits in Saskatchewan and Utah.

Substitution Risks

Samarium-Cobalt magnets can be used instead of Neodymium-Iron-Boron magnets. Permanent magnets are not required for asynchronous electrical drives or generators which can be used to replace synchronous drives or generators. The huge grid-connected wind turbines are equipped with asynchronous generators. The use of Lanthanum in NiMH batteries faces strong competition from Li-Ion type batteries.


References

  1. Lynas Investor Presentation, September 2008
  2. Update on convertible bond facility and announcement of proposed suspension of the project
  3. ASX Company Factsheet - LYC
  4. Rare Earths Project Update - Cost To Complete, December 2008
  5. Quarterly Report for the period ending 31 December 2008
  6. Increase in Total Mount Weld Rare Earths Resource, March 2008
  7. Lynas Acquires New Rare Earths Resource in Malawi, September 2007
  8. 8.0 8.1 Lynas Annual Report 2008
  9. BCC Research, May 2006
  10. American Elements: Rare Earths information center
  11. Rare Earth Elements—Critical Resources for High Technology
  12. Minerals, Critical Minerals, and the U.S. Economy
  13. The fture of the Nickel Metal Hydride Battery and the rare earth metals it is constructed from
  14. Jack Lifton: The Age of Technology Metals
  15. Regulatory Factors Affecting China's Rare Earth Industry in 2008
  16. Chinese Rare Earths Export Quota reduced for 2009, 9th Jan. 2009
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