LYC 11.9% $1.84 lynas corporation limited

As I predicted in my last LYC post, the Review Committee gave...

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    As I predicted in my last LYC post, the Review Committee gave the LAMP a clean bill of health and confirmed that LYC is an enviromentally responsible company, offering Malaysia and the world a vital source of environmentally sustainable, non-Chinese Nd Pr. The presence of the LAMP potentially provides Malaysia with a platform to value add into magnets and electric motors and a multitude of green technologies that are critical to combating climate change and launching Malaysia into advanced manufacturing. I assumed in my last post that the Review would give the PM and relevant ministers the political cover to remove the licensing (production increases) and waste disposal (condisoil) impediments to the LAMP's operation. The advantages to Malaysia of a strong, growing LYC are obvious.

    The Chinese goverment has promised Malaysia some US$100b of direct investment over the next 10 years, and it is clear that certain Malaysian ministers are close to Chinese interests. It is not in China's interest for LAMP to continually incease production over coming years and potentially become the world's largest source of Nd Pr. That gives LYC/Japan too much pricing power, and removes Chinese influence over Japan and certain US and European markets. It's not really about LYC taking profits that would otherwise go to Chinese companies – from China's perspective, direct RE profits are trivial in the scheme of things. Rather, rare earths, and Nd Pr in particular, are/is a key international political, and trade tool for China. They are also critical for encouraging downstream industries to be based in China (providing China virtual monopolies over a number of critical industries that are a core part of Chinese government strategic planning). In other words, if LYC becomes too large, the incentive for global companies to set up critical industries in china and provide (sometimes forced) technological transfer to china is diminished. From a Chinese persepective, then, LYC needs it wings clipped, and I think certain elements within the Malaysian government have used this Review oportunity to do what China needs doing.

    Malaysia and China are happy for the LAMP to stay in Malaysia, providing it doesn't grow and have too much global influence and interrupt the complex web of Chinese trade carrots and sticks. Having to export waste will severely crimp LYC operations and shrink margins.

    While it is possible that the Malaysian government will do a sudden about face, and start supporting the LAMP (they do seem to turn on a dime), assuming they maintain the current course of containing LYC, I think the only option for LYC to be able to grow and remove itself from (what I think is) the web of Chinese influence is relocate at least part of its production in Western Australia. I think Japanese entities will be happy to support this move in terms finance. However, it will likely take a couple of years to complete, with some production downtime, which the Chinese know full well – giving China further time to consolidate downstream industries and ensure that when LYC does come back on line at full strength, its influence will be diminished. Crimping LYC for the next 3 years, as the global EV industry establishes itself, will make a huge difference from a Chinese perspective.

    A weakened, clipped LYC is also becomes more attractive as a takeover target. Japan may get sick of Chinese meddeling and just buy LYC outright.
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