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Mining
Lynas Rare Earths (ASX:LYC) has eaten its worst prices for its products since the pandemic, with its top brass saying an economic recovery in China is needed to trigger a rebound for magnet metals.
While much focus around future demand for both light and heavy rare earths is centred on the growth markets of electric vehicles and wind power, it’s a downturn in spending on consumer goods in China like air conditioners and rising production in the Middle Kingdom keeping prices in the doldrums.
Having scaled as high as US$175/kg, the bellwether rare earths product neodymium-praseodymium oxide averaged around US$56/kg in the month of December and with higher volumes of lower quality cerium and lanthanum in its sales mix following a planned shutdown at Lynas’ Malaysian refinery, Lynas’ average selling price tumbled from $47.4/kg in the September quarter to just $28.7/kg in the December quarter.
That saw its sales receipt drop from $128.5m on 2701t of total rare earths oxides for $112.5m revenue on sales of 3916t of TREO.
In the same quarter of 2022-23 Lynas pulled in $58.4/kg on 3725t TREO for $217.5m in sale revenue.
NdPr production slid from 1526t in the September quarter to 901t in December, but are expected to return to the 1500t range in March.
But Lynas also saw its cash fall from $902.6m to $686.1m amid a wave of capex investments on a planned expansion of the Mt Weld mine to produce feedstock for up to 12,000tpa NdPr and a new cracking and leaching plant in Kalgoorlie costing in excess of $700 million which just received its first lanthanide concentrate for processing.
What will it take for the market to turn around? Lynas MD Amanda Lacaze told analysts on a call today it would take a turnaround in Chinese economic activity to refire the market.
“It really is all about the subdued environment in China,”
“Generally speaking across out various markets we continue to see automotive is pretty strong, in our Japanese customers demand remains resilient.
“But really inside China, particularly when it comes to those areas which are associated with the real estate market we are seeing very soft demand which is translating to conservatism in terms of inventory holdings and sales in the rare earths market.”
Which all begs the questions about why production of rare earths within China continues to expand.
A new set of late year production quotas sent shockwaves through the markets, prompting producers there to cut prices.
2024 quotas are expected to be delivered for the first time after Lunar New Year, Lynas COO and market expert Pol Le Roux said.
“So there was this surprising announcement at the very end of the calendar year for additional quotas. I understand that this was specifically required by one Chinese major rare earths player who had consumed these full year quotas,” he said.
“That obviously led to a bit of oversupply given that the mood and the demand was not very strong and that explains the situation we are in at the moment.
“The key element is always to understand, China remains the biggest by far with supply on the planet. How much they increase their production quotas reflects their overall strategy.”
That is partly because of a need to supply a large level of downstream investment in China. But Le Roux said with rising long term demand for NdPr, eventually production quotas may not be the driver of prices.
A trip to China, Le Roux said, laid bare the economic difficulties being faced on the ground in the Asian powerhouse, and that Lynas was “now the most cost competitive producer”, saying “our costs are our muscles”.
Lacaze acknowledged there would be uncertainties around Lynas’ cost base, especially as it ramps up Mt Weld and gets an insight through the commissioning phase of the impact of its new Kalgoorlie facility of the costs of operating two cracking and leaching plants.
But she said the company would work to keep costs under control in preparation for another uptick in rare earths pricing.
“Our objective is to ensure that we have our operations operating safely and in a cost effective way to ensure that we are able to continue to compete and be well placed or the market upturn when it happens,” she said.
“I’m sure many of you who have been invested in Lynas for many years would know that this was exactly what we were saying in about 2020 and so we saw the benefits of being in that strong position when the market really picked up in 2021-2022.”
New drilling at the Mt Weld mine has also raised the prospect of upping its production of heavy rare earths like dysprosium, a tighter supplied portion of the market where prices have held up better in recent months.
Third party ionic clay rare earths deposits near its Kuantan refinery in Malaysia could also be a source to diversify its supply, Lacaze said.
As Andrew Forrest’s private nickel miner Wyloo announced it would transition to care and maintenance in Kambalda, Chalice Mining (ASX:CHN) announced a 40% spending cut on drilling and admin and Liontown Resources (ASX:LTR) revealed it would have to scale back plans to expand its Kathleen Valley lithium mine, South32 (ASX:S32) flagged a review of its open cut Cerro Matoso ferronickel mine in Columbia.
It pulled in prices at a 29% discount to the LME, issuing the warning in its quarterly report even as the company increase quarterly production 20$ to 10,000t of payable nickel, though down 10% to 18,300t for the half year.
Its other operations were a mixed bag, with guidance and costs largely unchanged aside from a 7% drop at its non-operated Brazilian alumina business and 12% at Mozal aluminium and lower molybdenum recoveries at the Sierra Gorda copper mine.
S32 boss Graham Kerr said the big diversified miner was focusing on cutting operating costs due to pressure on commodity prices, saying first half operating unit costs would largely be below or in line with guidance as it looks to grow copper equivalent output by 7% this year.
Copper production fell 3% to 15,600t, with half year output down 17% to 31,600t, with alumina and aluminium output largely stagnant year on year. Its met coal and manganese production fell 16% and 29% respectively QoQ to 1.272Mt and 744,000t, with met coal output 35% down for the half year to 1.787Mt.
But the Cannington mine in Queensland outperformed, with silver output up 7% to 3.624Moz, lead up 6% to 30,300t and zinc up 20% to 15,800t in the quarter.
Silver output at Cannington is up 20% for the first half to almost 7Moz.
RBC’s Kaan Peker said the update was negative with price realisation and an effective tax rate of 60-65% — against RBC estimates of 36% — likely leading to earnings downgrades.
“H1 FY24 Operating unit costs are expected to be in-line or below FY24 guidance for the majority of operations, which is a positive (we model unit costs broadly in-line with guidance),” Peker said.
“Price realisation was mostly weaker (Mozal aluminium, Worsley Alumina, Copper, met coal, and Aus Manganese missed). 2Q saw another working cap build (unwind pushed out another quarter), and the effective tax rate will be higher than expected.
“We expect to see consensus reductions to FY24 earnings and cash flow estimates on the back of this update.”
Perseus Mining ‘s(ASX:PRU) massive cash balance was a coil waiting to spring, with the gold miner sitting on US$594 million at September 30 and strong cash margins that suggested more profits coming in the December term.
Now it has pounced, finally ending months of speculation to launch a 55c per share cash bid for OreCorp (ASX:ORR) that could snare the Tanzanian explorer from the jaws of Toronto-listed SilverCorp Metals.
The off market bid, which will become unconditional if Perseus moves to a 50.1% holding in the owner of the proposed 234,000ozpa Nyanzaga fold project, comes after Perseus built a ~19.9% stake to block the SilverCorp bid, which includes a big portion as shares in the Toronto-listed, China focused silver miner.
That became a major issue for the bid as SilverCorp’s stock began to fall, dropping over 30% in the past 12 months.
PRU says its offer, which OreCorp says it assessed over the weekend as not a superior proposal to the SilverCorp bid, was a 4% premium to the offer the target’s board continues to recommend to shareholders — and has been given the tick of approval by WA mining big wigs and ORR shareholders Nick Giorgetta and Tim Goyder.
The offer, updated from a doomed to fail scheme bid to an off-market takeover offer with a 50.1% minimum acceptance condition, came in at 0.0967 SilverCorp shares and 19c for every ORR unit. But since the New Year SilverCorp stock has dropped 8.8% in Toronto.
$2.45b Perseus was up 2.11% today, while OreCorp rose 3.77% to the PRU offer price, at a market cap of ~$258m.
“Perseus has the financial capacity, technical expertise, and in-country relationships required to optimally develop OreCorp’s Nyanzaga Gold Project and bring the gold mine into production. This development would enable Perseus to continue to deliver on its Corporate Mission of creating material benefits for all of our stakeholders, including the Government and people of Tanzania,” Perseus boss Jeff Quartermaine said in his pitch to shareholders.
“If the acquisition is completed, Perseus will have three operating mines producing gold at a rate of over 535,000 ounces per year in FY2023 and two high-quality development projects that, when brought on stream, as intended, will enable Perseus to maintain or exceed that targeted production level well into the next decade.”
If successful in the bid it would provide another development option for Perseus, which operates three mines in West Africa but has clouds hanging over its main growth project — Meyas Sand — which is located in war torn Sudan.
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