LYC 2.89% $5.69 lynas rare earths limited

The only material negative that emerged from the...

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    The only material negative that emerged from the quarterly/conference call is that due to some clogging and cracking of pipes in the leaching unit, and other wear and tear, production at name plate capacity only occurred for around 5 days during the quarter.

    Pipes etc are still being replaced. Eric stated that the cost to fix and replace these pipes is not material. However, this is a material event in the sense that production at nameplate capacity (for an entire quarter) has now been pushed back to the next quarter. This should have been announced to the market 6 weeks ago under continuous disclosure. Shareholders and analysts have every right to expect LYC to improve dramatically on the communications front going forward.

    So we had 144 tonnes (nearly all light RE) produced during the last quarter (I predicted 500 tonnes in my last post), and Eric expects 300 tonnes to produced during the current quarter, with Eric predicting 2700 tonnes (=nameplate capacity) during the next quarter. Most of the high value heavy rare earths will not be shipped in volume until the next quarter.

    Reading between the lines, it looks like the clogging and cracking problem isn't expected to be completely fixed and the plant fully tested etc until the latter half of the current quarter.

    The good news for LYC shareholders is that production costs are lower than most analysts (including myself) had been assuming. The CFO released guidance today of "high teens" production costs up to 11kt REO, and $14-15 when phase 2 comes on line. Adding in corporate office costs, interest payments etc, I think can reliably use an 'all in' COP figure of around $20 for the next 12 months or so. (DB were predicting $33/kg COP, so they will no doubt have to revise their figure in their next report).

    Furthermore, all this is happening in the context of a basket price that is now roughly $29/kg and climbing (for structural reasons, and an uptick in demand). So contrary to what I said in my previous post, when LYC gets to nameplate production in the next quarter, and assuming $29 can be sustained (which looks increasingly likely), then LYC should be solidly profitable next quarter. I suspect this is why management were at pains to point out that they have no plans to raise capital in the foreseeable future.
 
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