LYC 5.65% $5.98 lynas rare earths limited

please place factual bear case here

  1. 1,176 Posts.
    ausheds wrote: There is nothing wrong with her underlying premise that LYC remains a speculative stock and probably will remain so for some time to come.
    Of course the great majority here believe the reward far outweighs the risk but it is only by analysing the negative argument that we can come to that conclusion.

    Several people have professed their love for this above position philosophically and that's fine. But if you can't make a true bear case the virtue is dry and dull IMO. It is far more constructive to give a real bear case then to espouse the virtues of a bear case.
    So in the spirit of good trading desk discussion here is my Lynas bear case:

    First, margin compression. The cost to produce rare earths is an unknown until you have production because of the unique geology and processing of each mine. Lynas has had to spend and raise costs every step of the way on it's journey. And while that is easy to ignore with rising REE prices, there must be equilibrium prices for REE going forward. Against that price our margins have been shrinking and will likely continue to shrink as we reach production.

    Second, customer fatigue. Unlike Moly that could feed Silmet with Mountain Pass ore until Phoenix is ready, Lynas must produce to satisfy customer expectations. If delayed significantly, customer contracts could fail. Fail to deliver on time and all of the years of promised earnings are lost and so is the earnings visibility.

    Third, Poor concentration and processing results. You can't know concentration results on a large scale till you are producing concentrate. We have been trading weak ever since the first feed to the concentrator. If the concentrate is less than expected then the confidence in the LAMP processing would be reduced as well. If we have poor results in both of these areas we could see a considerable drop in our production capacity and thus our forward revenues. This also could shrink our margins through additional costs and shrink our forward earnings.

    After that I see concerns about a change in the Malaysian government, conflicts on the waste disposal, poor corporate governance, CEO manipulations, environmental political backlash, competition from mines globally (but especially in China), China expanding their industry at the processing level to hold their dominance, plant and mine accidents, and natural disasters, ect.

    Now if any of the above impressed you as reasonable argument I suggest you go do some more research. This is the best bear case I've heard on here and I know it is pure nonsense. The issues deserve research but they don't hold up to the facts. Still the case, however weak, is much better than baiting, philosophizing about the virtues of bears and the rest of the garbage we get bogged down in over here on our way to production. I say we cut the Limburger around here and get a little more focused on Lynas for crying out loud. I like the jokes and banter more than anyone else, but the flames and baiting are a bad read IMO.

    The fact is Lynas is heading to the goal untouched and on sides. Consider these issues so your research will be rigorous, but IMO buy Lynas. It's that simple.
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