Ground Breakers: Lynas stashes rare earths as low prices bite, Silver Lake walloped in Canadian disaster
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As rainy conditions continue in the rare earths market, Australia’s undisputed leader Lynas Rare Earths (ASX:LYC) is stashing tonnes away for a sunnier day amid a conviction there will be an ‘inevitable uptick’ for the EV commodities.
NdPr oxide prices are down around half since the fourth quarter of 2022, falling from US$120.40/kg to US$60.40/kg in June, while dysprosium prices are down 23% to US$263.40/kg and terbium 46% to US$1009.70/kg.
Oversupply of lesser value rare earth materials like lanthanum and cerium in China also bit, with Lynas seeing quarterly sales revenue and receipts drop from $237.1m and $229.2m in the March quarter to $157.5m and $188.9m in June despite hitting a record NdPr production rate of 1864t and total rare earths output of 4475t in the quarter.
Lynas says demand from customers of lanthanum and cerium remains strong, but that it will squirrel away some supplies of light and heavy rare earths used in the permanent magnets in EVs and wind turbines in the expectation of higher prices as China recovers from its economic struggles.
Lynas’ overall selling prices have tumbled from $79.2/kg in Q4 FY22 to $38.9/kg in Q4 FY23. It blamed soft demand in China and Japan for NdFeB magnets as well as the lanthanum and cerium oversupply issues in China for the price crunch.
LYC is the dominant international player outside China, aiming to produce 12,000tpa of NdPr equivalent from its Mt Weld mine in WA, soon to be opened Kalgoorlie carbonate plant and Malaysian advanced materials plant from the middle of the decade.
It has also secured a site in Seadrift in Texas to co-locate light and heavy rare earths separation plants sponsored by the US Department of Defense.
Talking to analysts this morning, Lynas MD Amanda Lacaze said the company continues to be confident in the long-term direction of the rare earths market, where she sees that “inevitable uptick” emerging once stimulus is injected back into the Chinese economy.
“I think that what our position on this has always been is that the long term setting of the market remain really very positive,” she said.
“And that we need to be in a position where we can be successful if the market price is low and we can be very successful if the market price is high.”
EV sales continue to pick up both inside and outside China, with the International Energy Agency projecting those to rise 35% YoY in 2023 to 14 million units.
Lacaze said it was other areas of rare earths end user demand which had been disappointing.
“I think that there’s much written about the softness inside the Chinese economy and we do believe that will pick up as there will be additional stimulus into that economy,” she said. “We also see that the softness actually it’s different across different segments of the market.
“We still see the primary driver of growth in electric and hybrid vehicles continues inside China as well as outside but some of the other applications which can be a little more optional, the rate at which they grow.
“There’s been a bit of slowing of use in the wind turbine segment and in things like industrial automation or in China home applications like new air conditioners and those sorts of things.
“As some of those conditions pick up particularly inside China we’ll see the market price start to pick up. And yes, I think also what happens with the second half production quota will also affect confidence levels in the inside China market.”
China’s quota for rare earths was lifted 20% in March after a 25% rise in output last year.
Lynas’ rare earths sales volumes meanwhile fell from 4914t to 4050t, supplying into long term contracts but stockpiling material that could sell for higher prices later.
While China’s production quotas could have a dampening effect on price, Lynas COO Pol Le Roux said increased output from the major rare earths producer indicated confidence in long-term demand in the market.
“I think what is important to understand is that (the) Chinese are very confident on the demand increase,” he said, noting that prices had stabilised for some time at around US$60/kg for NdPr oxide.
“They are all investing in additional capacities and you have to give them this, they are not stupid people and they love money so they won’t spend money for the pleasure of spending it.
“So that means that yes, we are going through a weak demand period at the moment but the long term strategy is really quite enthusiastic on the Chinese side.”
Silver Lake Resources (ASX:SLR) had a horror morning shedding almost a fifth of its value after revealing its gold output could fall by 50,000oz in FY24.
After delivering 261,604oz at all in sustaining costs of $1941/oz in FY23, the gold producer expects to deliver just 210,000-230,000oz at $1850-2050/oz including $168/oz in non-cash inventory charges related to stockpile treatment at Mt Monger.
But the biggest frustration will come from the high cost Sugar Zone operation, which Silver Lake will idle to head back to exploration amid high costs and low margins, the latest Canadian acquisition to put a thorn in the side of an ASX gold miner.
Market consensus had Silver Lake producing 291,000oz of gold at $1800/oz in FY24, including 58,000oz from Sugar Zone.
At Deflector, which produced a record 44,614oz gold and 642t copper (AISC $1219/oz) in the June quarter and record annual production of 127,069oz at $1497/oz for FY23, Silver Lake expects to deliver 120,000-130,000oz gold and 700-1000t copper at $1500-1650/oz.
It Mt Monger mine will deliver 90,000-100,000oz at $2300-2500/oz, including that non-cash inventory charge.
Around $85m will be devoted to growth capital with a record $43m to be put to exploration, including $28m at Sugar Zone.
“The investment in exploration at Sugar Zone is the first dedicated program of its kind designed to deliver a step change in data to unlock the potential of the extensive resource base, highly prospective broader mine corridor and extensive land package hosting two large greenstone belts,” SLR said.