CAT | rare earths
Lynas dropped 24% in their first day of trading since the proposed hook up with Chinese co. CNMC was blocked by the Australian FIRB. Down further on Friday closing at 65 cents after trading at 90 before the FIRB stepped in. Could be a long term buy if it retraces back to levels we saw prior to CNMC showing interest. You’d be buying in the hope or expectation that prices for rare earths will increase (substantially) because currently it seems risky given the predicted cash cost versus predicted revenues (i.e. current rare earth prices) equation.
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Rare earths: Lynas corporation (LYC)
No comments · Posted by wildebeest in commodities, rare earths, resources
Rare earths have been in the news recently, primarily because China produces an estimated 93% and whenever China has a stranglehold on something it makes news these days — although you don’t hear much about tungsten anymore.
Had an admittedly quick look at the recent Lynas presentation (ASX ticker: LYC) and two things caught my eye:
Slide 18: Weighted price average $9.52 per kg of ore—based on the analytical composition of the ore.
Slide 30: Expected cash cost $5.65 per kg of ore processed.
This looks good: $4 margin per kg. Slide 19 shows a total resource of 2.78 Mt, but most of this resource is inferred. In any case what you’ll notice in slide 18 is that the weighted average price is heavily dependent on the trace components Dysprosium Oxide, Europium Oxide, and Terbium Oxide. With an estimated 4% total rare earths in the ore, these three components make up only 0.00048%, 0.0176% and 0.0028% of the ore respectively, or 4.8 g/t, 176 g/t and 28 g/t. The grams per tonne numbers would be pretty good for gold or platinum group elements in terms of the stuff being economically recoverable, but what does it mean for rare earths? Exclude those trace components and the weighted average comes down to ~ $6.80 per kg, assuming 100% recovery. So it seems to me that leaving aside the uncertainty in the size of the resource, the issue is how well you can economically extract rare earths that exist in ores in the gram per tonne range, and what sort of recovery rates you would expect. I’d like to know more about rare earth (i.e. lanthanides) chemistry, and extraction and recovery before being a buyer.
