Good afternoon
India growing with 6.1% in the first Quarter - 1% less than expected. I think this is a very formidable number, though, considered the "cash-withdrawal" experiment they have been through, and which still impacted the economy in the first Quarter. .
US labor market no surprises, while manufacturing continues to expand.
Base metals + gold largely unchanged today
Lynas - had a chat to the company today. They confirm, that prices are firming - obviously, from a low basis - amidst a more serious crackdown by authorities on enviromentally damaging mines in China. Demand is strong, and not only improving for Nd/Pr, which are the main rare earth elements used for batteries. I made a serious beginners mistake the other day in my back on the envelope numbers: While Lynas does produce Nd/Pr as their most important Rare Earth, in tonnage, that´s only about 31% of their production ( roughly 440t/month ). Another 5% are Heavy Rare Earth, and anothe 70% the rest, mainly Cerium/Lantanium, which costs about 2$ kg as opposed to 36.50$ for Nd/Pr. Their basket price is probably just under 16 US$/kg. Their operations are going very well - at times above name plate - and their cash operating costs incl administartion/head office are "in the low teens", which is excellent, and as you know, the company managed to make an operating profit of 12 mill A$ or so last Quarter. It´s not easy to reconcile all the numbers in the Quarterly, as the company does not give an exact number for costs, as well as no split-up on revenue. In any case, the fast majority of revenue is made from Nd/Pr - should be around 58 MillA$last Quarter from 69 Mill A$ in sales. If you extrapolate this with a price of 75US$ vs the current 36US$/kg Nd/Pr, sales should ceteris paribus rise to just under 100 Mill US$ on a Quarterly basis - operating profits should be roughly 200 Mill A$/year ( note the different currency being used in product price and revenue - the latter being in A$ ). The current net debt position is 400 Mill US$ = 570 Mill A$.
So - a heavily indebted company, still - even using much higehr Nd/Pr prices for these numbers. ON an EV-basis, LYC is capped at 570 + 302 Mill A$ market cap = 870 Mill A$, of 4x operating profit. Certainly not a bargain, given the risk! But it´s the only, significant producer of Rare Earth in the Western World, and should command a premium. Don´t forget, that 6 years back, the Nd/Pr price has been as high as 230 US$ / kg! Every additional 40 US$ ( from 75 US$/kg ) would give Lynas an extra 250 Mill A$ or so in operating profit. As you can see, the leverage is immense - and I think it´s fair to say, that production of Rare Earth will not be nearly as flexible as say production of Lithium. So if you are really bullish on the take-up of electric cars in the future, I think LYC ( and for that matter, PEK! ) are muich better plays than lithium stocks! The above is work in progress to some degree....all very indicative...while I am working on more exact numbers....
In any case, some food for thought in the absence of action in the resources space today!
I will spend some time tomorrow on an update of STX, following their new strategy-update today
Have a nice evening
WS