Lynas (LYSCY.PK) isn’t set to produce revenues from its rare earth mine at Mount Weld in Western Australia and from its Advanced Materials Plant in Malaysia until the fiscal year that ends in June 2011. And even then the Wall Street consensus calls for revenue of just $13.3 million (U.S. dollars) and a loss of about 90 cents.
Because the company is still in the process of beginning production, the lack of basic information—what will it cost to mine, ship and then process rare earths?—makes it very difficult to put any kind of price tag on the stock that’s based on fundamentals. In their absence I have to pay more attention to market sentiment and momentum. Right now it looks like Australian stocks are moving toward overbought in the short-term. Risk appetite, judging from flagging momentum, is waning. And leadership seems to be moving from natural resource and other cyclical sectors to consumer goods and health care. I think Lynas has an incredible long-term story given the rising demand for rare earth minerals in every green technology from hybrid cars to wind turbines, and given the scarcity of rare earth producers outside of China. (For more on the long-term rare earth story, see my post https://jubakpicks.com/2009/09/11/rare-earths-you-cant-build-hybrids-or-wind-turbines-without-them-and-china-is-putting-the-squeeze-on-supplies/ )
But given the demonstrated volatility of this stock—the ADR traded at $22.50 on November 2 and at $42.55 on September 23, 2009—I’d rather cut my risk now and look to re-purchase on a dip.
The stock has repeatedly touched my target price of $29 a share in recent days. With this post I’m selling Lynas with a gain of 24% since I added it to Jubak’s Picks on November 6, 2009.
Full disclosure: I will sell my shares of Lynas out of my personal portfolio three days after this column is posted.
Australian interest rates up again a couple weeks ago, and now an agreement for distribution in Japan that means that 70% of the total planned output from Lynas is committed. Further, there is an agreement to seek financing (jointly with the Japanese distributor) to accelerate the expansion to full capacity, and an increase in the Lynas REO “mix” proce to $67.05 per kg as of 11/20. On top of that, Lynas will be promoteds to the ASX100 as of next Tuesday, building institutional demand for the stock. This doesn’t yet mean a skyrocketing stock price, but at minimum underpins the gains to date. After dropping below $1.20 since my last post, we are now back to $1.56 going into Thanksgiving, and the Thursday action in Australia is up another $0.11. As I said way back when, there’s plenty of upside, and the ride is wild!
China announced last Friday a further 30% cut in export quotas to take effect next year. They estimate that without acting, their rare earth deposits would be depleted in 20 years. Not a lot of reaction, with the stock trading down $0.02 in Australia Monday after a decline Friday. US price at $1.65 is up a couple of cents after being flat to slightly down early in spite of a strong market day.
annear, the pullback you predicted was a week after your post, and allowed me to add a few more (LYSCF) at $1.14. Less than a month later we are at $1.61. I am not quoting the ADR’s, but the Australian shares (LYSCF.PK) bought through Ameritrade in USD.
On the Australian market the shares are up to $1.69 as I write (the AUD and USD are within a fraction of a percent of parity–so in effect equivalent) so we can expect another surge in the US quoted prices in the morning.
So I never sold when Jim did. The stock was converted and split into 5 times as many shares. And its now up 74% since I bought it on Nov 10th, 2009. My thought is the stock is it will have a pull back in the near term and then head up again over the long term.
I know China tried to buy this company but the Australian government rejected the bid. How much did China try to buy them for? Any new info on this?
Morgan Stanley has continued to add to its position, now nearly 10%. In addition, JP Morgan has today (Aug 17th) reported to the ASX that they too have reached the “substantial shareholder” threshhold of 5%. The stock price has today topped AUD$1. Whether the price will hold when the MS & JPM buying is done, who knows? But the ride is sweet so far. Anybody out there?
A$0.85. Morgan Stanley has added further to their position; to 6.63% from the previous 5.09% according to their Australian Securities filings on August 4th, 2010. The detail shows multiple daily trades by various MS entities.
China slashed rare-earth export quotas by 72% forthe second half of 2010 vs. 2009. Locally owned companies saw their aggregate second-half quotas cut by almost two-thirds, while foreign owned companies were slashed by 85%. This was announced on July 9th. On July 16th, Morgan Stanley became a “substantial shareholder” (>5%) in Lynas. Stock price is climbing quickly but not erratically. My holdings are in LYSCY.PK, and LYC in an Australian brokerage account. Best source for news is through the Australian Broker’s web site, alternatively Lynas’ corporate web-site.
Really old post, I know. But LYC jumped 9% on the Australian Stock Exchange last night! As LYC goes LYSCY.PK follows… any thoughts on this?
Action on the Australian exchange tonite (12/6 in Australia) shows Lynas up around 8 – 9% as of PST 8:00 pm 12/5. No company announcements showing up. Any insights anyone?
I’m holding out for $22 to buy some more. As for why, just check out Jim’s original post on Lynas. Rare earths are poised for a gigantic run in the near future, as demand for them increases, as well as the danger of China cutting off the supply (China currently supplies about 90-95% of the world’s rare earths).
Back at $23 already! Who here is buying and why?
Good info mcintorb! *thumbs up*
My reading suggests that most rare earth deposits, including those in China, contain Uranium and Thorium ores. These radioactive constituents have to be separated and either processed or disposed at additional cost and liability.
In Australia, I get the impression that even disturbing such ores requires special permits (if you can get them), not to mention the challenges of exporting radioactive materials.
In China, who knows?, but the government is apparently pulling the reins on some of the past mining/processing practices because of this issue. They have also put export controls on these materials, probably to lock up Chinese production of the high-tech downstream products (sophisticated magnets, mainly for mobile phones and other electronics, and batteries for electric and hybrid vehicles).
Lynas reports that unlike competing mines, their Mount Weld ores are free of Uranium or Thorium, which long-term would mean much lower extraction, handling, and processing costs. This still looks good to me, and I’m holding (up about 6%). I have the Australian shares–purchased at $0.50 a stub through TD Ameritrade with a $15 foreign security fee, and see a lot more up-side than down-side, although I agree the volatilty may mean a wild ride.
Avalon Rare Metals (AVARF on the Toronto Exchange) is probably the farthest long that I’ve heard.
Amen brother!
P.S. Keep up the good work Jim!
jandav, I don’t know if I moved this one with my recommendations. It kind of looks like it. Although I think that today’s 0.25 percentage oint rate hike from the Australian Reserve Bank had mor to do with today’s move than I did. And if that timing problem turned a 24% gain into a loss, I’m sorry. My advice is always to check the buying price and the target price to see if a buy makes sense by the time you’re looking at it. When selling, please note that you don’t have to sell exactly when I do. BTW I still haven’t found any Canadian rare earth plays that are far enough along so I’d be willing to buy them. If you’v e found one I’d love to hear ab out it.
EdMcGon, if I could get it back at $22-23, I’d buy. I’d be willing to repeat this trade over and over again.
Jim,
I’ve followed you for 8-9 years. Read you daily. I was looking hard for a canadian rare earth stock, but followed you on this one. I was looking for a holding, not a three week turn around, at a loss. Disappointed.
Evil confession time Jim. I put in a buy/limit order for Lynas at $23/share, just because that’s what you bought it at before. I know I’m sadistic…
But Australia just raised their interest rates again so I’m thinking long and hard about holding. Tomorrow should be exciting though. Expecting more volume than usual for the second day in a row. http://www.bloomberg.com/apps/news?pid=20601087&sid=aCKgEY11zLKk&pos=2
I love YX’s post:
—YX on 30 November 2009
—-Glad that I did not buy it.
Why would you not want to make a 25% gain in a few weeks? That was one of Jim’s best picks to date! I don’t buy all of Jim’s stocks, but that one was so much fun following him in and out! Great work, and great timing Jim.
Being a thinly-traded stock kept me away and that it was OTC.
Jim –
btw, i was not being sarcastic earlier…i meant thanks for your help with the recommendation and analysis…the stock has been a champ since i bought it off your recommendation and i’m still up 12%.
Glad that I did not buy it.
At this point, about $26/share and falling, it’s not even worth selling anymore. In fact, I might have to buy some more if it keeps falling. 😉
Jim –
You totally moved the stock with this posting. I think I’ll wait the three days too. Thanks for all your help.
Jim, what would be the price you’d want to buy it back?