Top Gainer: Lynas Rare Earths (LYC)
After falling 15% in a day a few weeks ago to $1.75 on a string of bad news, rare earths supplier Lynas (LYC) has made up lost ground and then some, as it has rallied to $2.07 – an 18% gain in three weeks. Today, it was in the winner’s circle, taking out the top gainer’s spot in a market that tumbled 1.5% on US default fears.
When it comes to commodity investing, most of us are familiar with the different types of commodities that we can invest in. Popular choices are energy commodities, such as oil and natural gas, or the agricultural or “soft” commodities like corn, wheat and cotton. Metals are also popular investments, and many people use gold as a type of currency in times of economic uncertainty. Another group of less recognisable metals has also joined the investment conversation as the latest hot commodities – the rare earth metals (REM). Lynas is one of Australia’s leading rare earths producer, and as such it is in a strong position to capitalise on the current boom.
The rare earths story embraces potentially big windfalls laced with plenty of risk. Listed Australian rare earths companies aren’t for conservative investors, as explorers without earnings dominate the landscape. Nevertheless, that doesn’t stop share prices rockting as the market looks forward, factoring in what tomorrow can potentially bring in an industry dominated by China.
The share price of Lynas Corporation, which is among the best known Australian rare earths companies, soared from 37.5 cents in early May last year to a 12-month high of $2.70 on April 12, 2011. However until the surge in the past few weeks shares had been steadily sliding as the company denied reports that a planned Malaysian plant could be delayed by one to two years.
The denials followed a favourable report from the International Atomic Energy Agency (IAEA) about the company’s controversial proposed rare earth refinery in Kuantan after public protests had been growing about the risk of radioactive waste from the planned plant in eastern Malaysia. The IAEA report found that the plant was safe and fully compliant with international standards, however it said that Lynas should provide a long-term waste management plan and improve its communication about the plant with the Malaysian community before a pre-operational licence was granted.
Lynas released two statements on the back of this report from teh IAEA, denying media reports that the project would be delayed and that engineers were worried about construction problems at the Lynas Advanced Materials Plant. “We have received confirmation from the Malaysian government that no spokesperson for the government stated a one to two-year delay as quoted by some media articles,” Lynas said in a statement. “Neither Lynas, nor our construction team, are facing any unusual construction difficulties. We acknowledge that not enough has been done to engage with the community and we will correct that now.”
Despite Lynas’s statement, the media reports spooked investors, sending the company’s share price tumbling. It appears the message has sunk in, with investors jumping back into the stock despite the weakness in the broader market..
Mine Life senior resources analyst Gavin Wendt resources consultant said the market was surprised and concerned about the prospect of delays in Malaysia. “When you’re talking about environmental considerations and local populations, these things can drag on,” Wendt said. “The market wasn’t expecting this delay, that’s why the market is right to be concerned about the timing.”
A few weeks ago saw some better news, with Lynas announcing that it had teamed up with German giant Siemens to produce magnets for use at wind farms. The two companies have signed a letter of intent to establish a joint venture to produce neodymium-based rare earths magnets for Siemens’ energy-efficient drive applications and wind-turbine generators.
Siemens views the joint venture as providing security of supply for the rare earths they require. “This planned joint venture would be an important strategic pillar for us to pursue a long-term and stable supply with high performance magnets,” said Ralf-Michael Franke, chief executive at Siemens drive technologies division. The companies have not said if the magnets would be produced at Lynas’s controversial proposed rare earth refinery in Malaysia.
Patersons Securities analyst James Georges has a buy on the rare earths supplier. “Lynas will be the next rare earths oxide supplier outside China…record rare earths prices add to this company’s appeal,” says Georges. He notes that the company is fully funded to achieve forthcoming milestones and it has $220 million in cash plus further funds raised through a combination of issuing equity and debt. “Our valuation has risen and we have a price target of $2.95 a share.”
Deutsche Bank also has a buy on LYC, albeit with a lower price target of $2.60.
Goldman Sachs recently sold its LYC holdings from its Resources Fund, saying that LYC was sold out of the portfolio after a period of strong performance driven by the significant rise in the price of rare earth elements.
You can read the latest half-year report by clicking here.
Chart: Share price over the year to 26/07/2011 versus ASX200 (XJO)
Stock code: LYC
Charts: Lynas Rare Earths Limited
More news: Lynas Rare Earths Limited
Investor Centre: Lynas Rare Earths Limited
Biggest Loser: AWE Ltd (AWE)
After hitting a 12-month low of $1.17 on 20th June, AWE Ltd (AWE) – an Australian based oil and gas exploration and production company – had rallied 25.6% to hit its highest level since May. However it was in the loser’s list again on Monday, tumbling 10.2% in a falling market to take out the biggest loser title. With this much volatility, it’s clearly not a stock for the feint-hearted.
Listed on the ASX in 1997, AWE currently has oil and gas interests in Australia, NZ, Indonesia, Yemen and the US. According to its website it “was formed to appraise oil and gas discoveries in its initial asset portfolio and to build a significant international petroleum exploration and development entity through further international asset acquisitions.”
Following a merger with ARC Energy in 2008, AWE gained equity in the BassGas and Cliff Head projects and further production interests in the Perth Basin. AWE then added equity interests in prospective exploration permits and shareholdings in other listed oil and gas explorers, Buru Energy (AWE owns 13%) and Adelphi Energy.
AWE’s six main producing assets are:
– Tui oil fields in NZ (AWE owns 42.5%)
– BassGas project in Tasmania (AWE 57.5%)
– Cliff Head oil field in WA (AWE 57.5%)
– Casino gas field in Victoria (AWE 25%)
– Onshore Perth Basin interests (AWE 33-100%)
– Onshore US shale gas, Texas (AWE10%)
AWE notes that in addition to its oil and gas producing assets it has several exploration opportunities both in Australia and overseas.
With oil and gas prices having rallied over the past few years, it’s worrying that in such boom times that the company is struggling. It doesn’t bode well for the share price should the good times come to an abrupt end.
However John Young, resources analyst with Wilson HTM said earlier this year that he thought that the oil and gas explorer was oversold following disappointing exploration results in CY10, with existing producing projects worth more than the current share price and upside potential from the onshore Perth Basin shale gas. Young has a $2.35 price target.
AWE’s June quarterly report is due out on Friday. Today’s dive suggests that the number aren’t going to look good.
Chart: Share price over the year to 26/07/2011 versus ASX200 (XJO)
Stock code: AWE
Charts: AWE Limited
More news: AWE Limited
Investor Centre: AWE Limited
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