Tuesday, December 17, 2013

Seeking Alpha: Weak Prices Have Lynas Fighting An Undertow

Continuing a theme here of late, Australia's Lynas (OTCQX:LYSDY) is yet another mining company that has been laid low by significant price declines in their core addressed markets. As falling copper, iron, and uranium prices have brought the long-term value of First Quantum (OTCPK:FQVLF), Fortescue (OTCQX:FSUGY), and Paladin Energy (OTCPK:PALAY) into question, the dramatic fall in rare earth oxide prices has likewise crushed Lynas and brought the very viability of the model into question.

A huge (and likely unnecessary) supply squeeze a couple of years ago sent REO prices rocketing, and while investors responded by throwing money at REO mining companies, customers responded equally predictably by increasing recycling and finding alternative materials. Matters are not helped by the fact that the REO market is the murkiest, least transparent segment of metal mining, nor by Lynas's various glitches with production. The significant spread in bear/bull outlooks for Lynas tells me that there could be huge upside to these shares if prices firm and management stays on course, but it also tells me that there's a real risk that Lynas fades away and ultimately sees its assets bought for pennies on the dollar.

Read the full article at Seeking Alpha:
Weak Prices Have Lynas Fighting An Undertow

1 comment:

Ryan Dressel said...

Stephen,

I've enjoyed reading your blog since recently discovering it. You have a lot of original ideas and sound analysis.

As for Lynas - it's been a nightmare to say the least. When they did the feasibility study for LAMP in the mid 2000s, they could not have drawn up a worse scenario since (delays, political influence, Malaysian protests, low R.E. prices, black market in China, etc.)Given Lynas' eroded stock price, and that it is trading below book value (at least for the ADRs), it seems the market has baked in all fear into the price.

Despite all the negatives, I think there is some serious potential for the stock. They are introducing long term contracts with customers which would be a game changer for the industry. It would also make Lynas' revenue projections a lot more predictable and less volatile. I don't think it would take much news to shoot this stock back to $0.60 / share. It was trading around that price in May when teh Malaysian elections occured (and reduced the risk of LAMP being shutdown). If it can fix the initial kinks in LAMP(reasonable for a plant of that size) and prove to the market that it can become operationally efficient - then I'd agree with a $1.00 / share price as you alluded to.