andrew harrington resources analyst, coal & specialty metals february 2013 after lynas, what...
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Andrew HarringtonResources Analyst, Coal & Specialty Metals
February 2013
After Lynas, What Next?
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Realistically – after Lynas, Molycorp, and Great Western
• Tough year for the Rare Earth sector on the Stock Exchanges.
• Capital Strike. Closure of the TSX.V is being openly discussed.
• Fall in REO prices. One should not divorce the price fall from the anticipation of new supply.
• LYC and MCP, the two giants, haven’t been spared. The former, legal obstacles in Malaysia and the latter financial problems in US.
• Yet, LYC is close to booking revenues from the LAMP, and MCP is being rulered.
• GWG was on the cusp last year, but it is still “working toward production at Steenkampskraal”.
• The finish line is a long time coming. But with up to 50% additional supply on its way who will step up?
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Rare Earths Map – Biggest In-situ Ore Values
#7 Nolans Bore ARU
#2 Mt Weld x2 LYC
#9 Zandkopsdrift FRO
#6 Kangakunde LYC
#10 Strange Lake QRM
#8 Hoidas Lake GWG
#5 Bear Lodge RES
#3 Mountain Pass MCP
#? Baiyun Obo probably #6 or 7 Boutou Steel
#1 Steenkampskraal GWG
New Discoveries?
#4 Araxá MBC
LYC and GWG control half of the Top 10 deposits
The New Producers
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Rare Earths Map – Highest Basket Prices. The impact of Yttrium
#2 Browns Range NTU
#1 Lofdal NRE
#4 Kutessay II HRE
#5 Norra Karr TSM
#9 Zeus/Kipawa MAT
#10 Buckton DNI#6 Bokan
Mountain UCU
#8 Round Top TRER.OTC
#3 Hastings HAS
Makes Both Lists#7 Strange Lake QRM
~$100/kg
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Rare Earth Sector Share Prices 12 months to date (%)
• Big Falls in share prices across the spectrum of the sector and across ASX, TSX, NYSE• Some catastrophic falls past 70%• MBC is backed by it fertilizer business.
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Rare Earth Sector Share Prices 1 month to date (%)
• Even during the market rally of the start of 2013, most Rare Earth stocks have had falls.• DNI was a market darling 18 months ago, but now... A pattern that has been seen often.
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Rare Earth Sector Market Capitalisations ($m)
• Big drop from LYC and MCP to the rest. All sub-$200m• The total REO market is less than $5b (about half of what it was last year).• Total capitalisation of the listed names is $4b. Could be ~$10b so room for values to rise.• How much is “addressable” ex-China?
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Enterprise Value per Resource (EV$/t)
• Gold companies trade at around 10% of the market value of their commodity. • Processing challenge explains some of the difference, but still a big discount.
Trading at less than 5% of the commodity price of $38,000/t
Trading less than 0.5% of the commodity price
Trading at 2% of the commodity price
Last year was only 1%.
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Two Axes – Geology and Progress
HREOLREO
Start up/Production
Exploration
ARU
KRE
LYC
GWG
RES MAT
AVL
MCP
GGG ALK
GEMCCE
HASHRE
HUD
MON
FRO
Where are the Advanced Heavies?
QRM UCU TSM
NRENTU
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Rare Earth Distribution by Project
The World NeedsMagnets and Phosphors
• New Supply from MCP, LYC, and GWG – almost all Lights.• New Entrants will be most attractive if they have more Heavies.
<- New JORCs
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The Periodic Table as we should think of it
• What are we talking about when discussing Rare Earths?• More Sophisticated now; “Lights” versus “Heavies”, and even “Critical”• End-use categories as well – Batteries, Magnets, Phosphors, Glass• We are now using End-use designations: > Catalysts & Glass (La,Ce); Magnets (Nd,Pr,Dy); Phosphors (Eu,Tb,Y); and Other
Light Rare Earths Heavy Rare EarthsPlus YttriumCatalysts &
Batteries Magnets
Glass
Phosphors
Source: Wikipedia
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DISCLAIMER
•This presentation is intended to provide general advice only, and has been prepared without taking account of your objectives, financial situation or needs and therefore before acting on advice contained in this document you should consider its appropriateness having regard to your objectives, financial situation and needs.
•While this presentation is based on the information from sources which are considered reliable, Patersons, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this presentation is complete or accurate.
•Copyright Patersons Securities Limited 2012.
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