Lynas chief assures hurting rare earths faithful of a strong future

Lithium stocks have been taking a caning of late. It’s been painful to watch, particularly for the junior explorers, where price hits of up to 75 per cent in the past couple of months is common.

There is no denying that there should be a major correction given the scale of the plunge in the lithium price from last year’s unsustainable levels.

But there is some solace to know more recent panic in the sector was based on the report of a single spot market sale which the pricing agency admitted was based on second-hand information.

It is the downside in a market in which pricing remains opaque.

The hope is that when the lithium producers get around to reporting their realised prices for the December quarter, the real-world pricing will be shown to be holding up better than the spot price reporting suggests.

Still, there is nothing for the lithium stocks to do but grin and bear the punishment that is being dished out. Rightly or wrongly, sentiment has turned against the sector and it is likely to stay that way until restocking in China after the Chinese New Year in February.

While sentiment has swung against lithium for the time being, it has swung decisively in recent weeks in the favour of gold, uranium and rare earths, with the latter being today’s interest.

The leading ASX rare earths stock Lynas (LYC) held its annual meeting during the week.

Given the 35% smashing of prices this year despite western world powers shouting from the bleachers that China’s control of the industry must be broken to ensure decarbonisation, and to protect defence capabilities, it might be assumed the Lynas meeting was a sombre affair.

Afterall, Lynas’ market cap has fallen by $2.88 billion during the year to $6.2 billion.

But Lynas’ ever-effervescent managing director Amanda Lacaze made sure the meeting was upbeat, delivering some soothing words, drawn from a sense of history.

“The market for rare earths continues to grow. One of the things that I think is worth reminding ourselves is that today in 2023, demand is 45% higher than it was in 2019,” Lacaze told the assembled rare earthers.

“We see this trend continuing. It is why we are re-investing in assets in the business ($730 million at a cracking and leaching plant near Kalgoorlie and $500m on its Mt Weld hard-rock mine) to be able to meet demand as it continue to grow.”

Lacaze acknowledged that demand in 2023 had moderated due to the economic slowdown China is still working through.

“But we expect the growth to accelerate right through to 2030,” she said, adding later that Lynas continued to significantly experience more “demand that we have been able to serve”.

There was no price forecasting at the meeting but the broad expectation among experts in the area is for prices for the key magnet rare earths for EV’s and wind turbines will at least double by 2030 to $US120/kg and could possibly go as high as $US160/kg.

Ionic Brazil:

While the Lynas business is based on the fabulous hard-rock Mt Weld deposit in WA, Lacaze has mentioned previously that ionic clay deposits (which underpin China’s current dominance) were of interest in its musings about the mix of its resource base going forward.

As the success China has had in all but cornering the market in recent decades demonstrates, the clay deposits have advantages over their hard-rock counterparts despite the much lower grades involved.

Canaccord summed up the advantages nicely in a research note this week.

“These (advantages) include low-cost mining (shallow mineralisation, no drill and blast, little to no waste), relatively simple flow sheet (no energy intensive crush/grind, lower reagent consumption and no high pressure/temp leaching), and typically inert tailings,” Canaccord said.

“These characteristics lend themselves to lower capital intensities and operating costs compared to most hard rock projects.”

Now if Lynas wants to get serious about adding an ionic clay deposit to its resource base to capture its full share of the accelerating growth in demand it forecasts until at least 2030, Lacaze should hop on a plane to Brazil.

Gina Rinehart is already there in a fashion through Hancock Prospecting’s 6% stake in Brazilian Rare Earths (BRE) which is headed to the ASX lists after a $50m IPO. At the issue price, the company would have a $315m market cap.

BRE is coming to the market with an inferred mineral resource of 510.3Mt at 1,513ppm. But it is not all ionic clay material due to the inclusion of a high-grade monazite resource bumping up the overall grade of the mainly clay-hosted resource.

BRE’s pending debut will increase the number of ASX-listed companies with a focus on Brazil’s clay-hosted rare earths to four. Collectively, they now have a combined market cap of more than $820 million (assuming a $315m market cap for BRE).

The biggest of them remains Meteoric (ASX:MEI) with a $402m market cap at 20.7c a share. Canaccord has initiated on the stock with a 45c price target, in keeping with price targets from other brokers that have come before.

Canaccord said Meteoric’s high-grade Caldeira project – it has a maiden resource of 409Mt at 2,626ppm – is probably the highest quality rare earth clay project in the world.

“Based on our research, Caldeira ranks as the largest, highest grade, rare earth clay project in the world, with initial testwork also suggesting the potential for extremely high recoveries. The possibility of low capital intensities and low opex strongly supports project development potential, in our view,” the investment firm said.

The other ASX-listed and Brazil-focussed rare earth companies include the $19m Alvo (ASX:ALV) which owns the Bluebush project, right next door to the first big ionic clay project to be developed outside of China, the private equity owned Serra Verde (911Mt resource grading 1,200ppm).

Then there is Viridis Mining (ASX:VMM) which has a fast-grown market of $82m in response to promising work at its Colossus project.

It is a feature of all those mentioned above that have only tested a portion of their prospective ground positions. So there is plenty of exploration upside still to come at all four.

New Player:

Equinox Resources (EQN;ASX)) has just joined the band of ASX-listed companies with a Brazilian rare earths focus by picking up a big ground position near BRE’s ionic clay-hosted rare earths ground in north-east Brazil.

Part of the Rob Martin stable of companies, and led by former Fortescue and BHP operative Zac Komur, Equinox raced from 25c to 37c on news of the pick-up in Tuesday’s market.

It has since settled back at 30.5c for a market cap of $30m, making it another one leveraged to rare earths exploration success in Brazil.

Having said that, its market cap before Tuesday’s price spike was comfortably underpinned by its Hamersley iron ore project in the Pilbara and its lithium exploration ground.

The Hamersley project is a 343Mt resource making its way through the agreement/approvals process. The grade is not the highest in the Pilbara but the project is surrounded by rail infrastructure owned by Fortescue and Rio.