NdPr Demand Remains Robust: Lynas Corporation Limited (ASX: LYC) released its March quarter 2018 update. During the period, NdPr (neodymium and praseodymium) production volume increased by 9% from the previous quarter to 1332 tonnes. Revenue substantially increased by 75.3% in Q3FY18 as compared to previous corresponding period. On the balance sheet side, the group reduced its debt from US$256.5m at 31 December 2017 to US$185.2m at 31 March 2018 following the conversion of another US$71.3m of convertible bonds. However, market demand for rare earths was very strong, with customer orders exceeding current production capacity. Total rare earths’ oxides (REO) production recorded 4110 tonnes which was stable and in line with expectations despite certain challenges such as regulatory inspections, works undertaken as part of Lynas NEXT, and a significant restriction in the Kuantan water supply in late January. Besides this, the Group achieved positive cash flows from operating and investing activities during the same period while the group continued investment in Mining Campaign 2 and Lynas NEXT initiatives, which was funded from operating cash flows. Based on the aforesaid developments, costs for Mining Campaign 2 are expected to decline during the June quarter whereas the investment in Lynas NEXT will increase. However, demand for NdPr remains high with stock on allocation over the period wherein some customer orders have not been met in the past quarter. The additional capacity is expected to be gained through the Lynas NEXT initiatives which will improve the Company’s ability to meet customer requirements thereby increasing top-line growth of the company. Lynas remains on track to achieve increased NdPr production of 500 tonnes/month of NdPr from April 2018, and 600 tonnes/month of NdPr from January 2019.


Production Trend (Source: Company Reports)

On the other hand, the group received $2.3 Mn due to a one-time GST refund catch-up in the March quarter. Further, the growing number of end users are approaching Lynas directly to seek ways to secure, on a long-term basis, their increasing demand for NdPr. We expect that the group will continue to develop these long-term contracts through this calendar year. With efforts in different directions, the group now aims to return to the ASX100. The stock has jumped up 246% in last one year, as at May 10, 2018. We believe it may be better to stick around with the stock to reap benefits from its efforts.

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