Rare earth play Lynas gears up to fight old battles after hitting political speed bump
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Most chief executives would be happy with a 44 per cent share price rise — but not Amanda Lacaze.
The boss of Lynas Corporation has set her sights on another 150 per cent uplift in the share price of the rare earth miner, which she rescued from the scrap heap to make a world-class player in a complex asset class.
Getting to the top has not been a one-way journey for Lacaze (pictured above), who inherited the chief executive’s job at Lynas four years ago when it was peering into the abyss of outright collapse.
Prices for rare earths — a notoriously tricky group of minerals which are neither rare nor earths — had soared and crashed, taking Lynas with them as it struggled to develop its mine in WA and a processing plant in Malaysia.
When Stockhead took its closest look at Lynas last August it was entering a rare golden period with prices on the way up for its basic product — a combination of the metallic elements praseodymium and neodymium.
Demand for high-strength industrial magnets, the major use of the rare earths produced by Lynas, were rising thanks to strong demand and backed by weakening supply from China as it tightened environmental protection laws.
From a share price of around $1.55 Lynas steamed ahead to hit a four-year high of $2.96 just three weeks ago — a gain of 91 per cent.
But that’s when a chilly political wind blew in from Malaysia, driving Lynas back to $2.23, and shrinking the increase from the original Stockhead story to 44 per cent.
While unlikely to result in a serious financial setback for Lynas, the Malaysian surprise — which saw the replacement of a political party which had ruled the country for 60 years — means the company needs to build fresh bridges to the new government.
Some Australian investors, wary of international political shifts, headed for the exit when Malaysia recalled 92-year-old firebrand leader Mahathir Mohamad as Prime Minister.
The political shift forced Lynas to file an explanatory note with the Australian stock exchange, saying that the change of government in Malaysia “may have influenced recent changes in the share price”.
Perhaps more important than a new government in Malaysia is the prospect of a reinvigorated environmental movement which campaigned against the Lynas Advanced Materials Plant (LAMP) near the East Coast city of Kuantan.
For Lacaze the prospect of re-fighting a battle she won when another government was in power cannot be pleasant. But she is confident of winning because LAMP has consistently got a clean bill of health during independent monitoring.
The most annoying part about the political speed bump in Malaysia is that it came at a time when so much had been going right for Lynas.
Rare earth prices, while no longer booming, are strong.
Production at the Mt Weld mine is expanding, and production at LAMP continues to grow, having reached a target of 500 tonnes a month — with 600 tonnes per month in sight for early next year.
Financially, the company is in its best health for a decade, posting a handsome profit of $78.7 million in the December half-year – the first profit since Lynas was a gold-miner 18 years ago.
The latest result sent Lacaze’s already buoyant confidence into overdrive with talk switching from paying down debt — which Lynas has been doing regularly since the cash started flowing from product sales — to dividend payments, which can only start with the approval of the company’s financiers.
The high point in the outbreak of optimism came a week before the Malaysian election when she said in an interview with the AFR newspaper that she aimed to win back a position in the ASX top 100, a standing it achieved in 2011 when rare earth prices boomed and Lynas shares were trading as high as $25.
But to achieve a top 100 berth Lynas needs a stockmarket value of at least $3.7 billion — 150 per cent more than it is now valued at.
Given what she has achieved so far it would be unwise to treat that aim as unachievable.
Bdding another $2.2 billion to the market value of Lynas is a heavy lift and one that will only be achieved by lifting rare earth production, hoping that prices stay high – and Malaysian politics do not interfere.
Tim Treadgold’s The Explorer column appears weekly in Stockhead.
Tim is a Perth-based finance journalist who has been covering the resources sector for more than 40 years for national and international publications — long enough to know what’s gold and what’s fool’s gold, of which there’s quite a bit in the mining world.