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Lynas Surprises Investors: Share Price Surge With Investor Day Presentation


Lynas Surprises Investors

Lynas Corporation Limited (ASX: LYC), an Australian rare-earth mining and S&P / ASX 200 company listed on the Australian Stock Exchange since 1986, operating two main businesses that include mining and an enrichment plant in Mount Weld, Western Australia, and a refinery in Kuantan, Malaysia.

On May 21, 2019, Lynas released its investment plan presentation, the Lynas 2025. After that, the company share price surged about 15% to $2.27, after the trading period.

The reason for the share price increase

The surge in the share price could be indirectly related to the Chinese President Xi Jinping visiting JL MAG Rare-Earth tour, a rare earth company in Jiangxi Province that boasts about half of the heavy rare earth in the world, on Monday. The visit can be seen as a fear that China is planning to cut off the Rare-earth supply to the United States because of the trade war, and it also triggered a remarkable surge in prices for several Chinese rare earth companies, including JL MAG Rare Earth, which has risen 42% since mid-May. Rare earth materials are widely used in almost all areas from night vision goggles to cruise missiles, and demand has increased significantly for the electric mobile, wind turbines, automatic operation and electronics industry, and oil and gas refining.

As a result of the trade war between China and America, the speculation activities of the rare earth commodities would increase. The United States relies on about 80% of China's rare earth imports. Even though the United States can produce ore in the California Yamaguchi Rare-Earth Mine, as the lower cost and convenience of the economic integration and free trade, the ore will be exported to China for processing.

An analyst claimed that China's prohibition of the supply of rare earth materials, which has become more and more important in electric vehicles and military applications, will dramatically increase the price of rare earth, which is similar to the 2009 event that Beijing cut off supply to Japan.

Therefore, Lynas Corp, which is already a rare earth supplier to the United States, will benefit from China's rare earth export restrictions, processing US rare earth ores in China limitation and the use of Chinese rare earths in the US supply chain. As announced on the presentation, Lynas expects that the demand of the company product will exceed the new supply in the future, which may mean that rare earth prices will long be at a favourable level.

Xi Jinping’s visit also affects the other ASX-listed rare earth companies. For example, Arafura Resources and Alkana Resources rose by 35% and 10%, respectively. While Ms. Lakaz, the managing director of Lynas, said that she did not think that Xi Jinping’s behaviour was too important. “Rare earths are very important in China, and the downstream processing of rare earths is very important in China. The fact that the president went to visit facilities does not mean that the policy will suddenly change,” she said.

The plans of Lynas

Firstly, Lynas and Blue Line, a leading US rare earth material processor, have announced to sign of a memorandum for a joint venture that will make it become the world's only large producer on heavy and medium-rare earth separation outside China.

Lynas will own the majority of the joint venture, based on a large industrial base in Hondo, Texas, which is fully equipped with tunnel furnaces and equipment for rare earth processing. Ms. Lacaze claims that the United States has lacked the ability to separate rare earths for many years, and Lynas has been able to provide the key components of permanent magnets, which are the leading technologies in the industry.  This partnership will enable Lynas to maximize the value of the company’s rare earths and accelerate the growth of the US market by providing a sustainable supplement source. Moreover, the Joint venture was made possible because it was welcomed by the US Department of Defence.

Secondly, the company has come out with a comprehensive strategy (stopping the production of radioactive material in Kuantan) to deal with the problematic licensing problems in Malaysia, more specifically its rare earth processing plant location. One of the major parts of the plan is to transfer its cracking and leaching operations from Malaysia to Western Australia. This not only meets Malaysia's requirements but is also expected to help the company increase its production to 10.5 kt of niobium and tantalum (NdPr) oxide each year,  with an aim to meet and benefit from the expected growth in demand.

After the dramatic increase in the company share price, the $2.25 per share acquisition offer made by Wesfarmers on March 26 has been immediately rejected by Lynas big investors. Considering the performance of its share price, investors seem to be positive with Lynas development plan for the next six years and scramble to purchase the company shares on Tuesday. Therefore, the company decided to place a trading halt on May 21, 2019.

By Louis Cai

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