I looked at rare earth shares after the newsletters called attention to them.
The problem I am having is the number of shares required to fund a mine. They raise money for pennies a share and issue too many shares compared to other miners and other resource opportunities. I invest in oil, gas and gold because of demand for the product.
The rare earth demand is $1B per year in sales. To me that is a small industry. The demand is currently met by China and its low cost labor advantage.
Miners in Australia make $50,000-100,000 per year.
My other concern is how much demand for rare earth in the future. Suppose demand increases 100%, what does that do if that demand is split by producers in Canada, Greenland and Australia? When will the demand arrive? Five years from now? Maybe.
Take $1b in increased demand and divide it up to mines in South Africa, Canada, Australia and China. That is not much for Lynas, expecially when you allocate the revenue to 2 billion shares as you mentioned. Also, how much of the revenue number goes to the bottom line. Most miners have mining costs of 30-50%.
I think Lynas is overpriced. Most shares were purchased in the last year at 29 cents per share. There will be no revenue for 3 years and we do not know how much revenue per share. With 2 billion shares what if revenue is only 5-10 per share.
Price of the shares is up 30-40-50% over the offering this last year.
You are a cheerleader for REE and need to do some research. I did. I am always looking for mining stock opportunities. This company's price is falling because the of many factors:
hype by newsletters has run its course, Australia has decided to tax mining companies to the tune of 50%, the price of rare earth minerals have not changed much during the last decade and there is a reason for that. Production meets demand and governments and banks do not buy rare earth as they do gold.
I would be stockholder here as a speculation at a reasonable price. I thought that price was around 30 cents a share. Well, as the price of this company keeps declining I might get it for half price. I do not see the economics in 2010, 2011 or 2012, so I could it a speculation until the company tells me how much demand for their production. Since China is the big consumer in the world for these minerals my opinion is they will not need to buy Australia production for the next several years. So I do not see the sales.
"My other concern is how much demand for rare earth in the future. Suppose demand increases 100%, what does that do if that demand is split by producers in Canada, Greenland and Australia? When will the demand arrive? Five years from now? "
- Lynas will be the first major producer of rare earths outside of China. It will be years before other significant mines produce anything. As we move into the "technology era," I believe that rare earths will rise in demand. I believe there will be a rare earth metal "crisis" or minor shortage for a year or so. Lynas will be there to benefit from that as other miners scramble to catch up. This will be the prime opportunity for Lynas investors. Then things will level out. But also keep in mind that Lynas has all ready established itself with its "RED" brand, and has multiple international contracts in place. Essentially, they will be a vertically integrated rare earth supplier. Some of these junior miners are laughable in comparison.
"There will be no revenue for 3 years" - I understood that they will start producing from Mt. Weld in mid/ late 2011. Thats basically a year from now.
Regarding the number of shares. I thought the latest stock offering was for .41 ( around that US.) The .29 was for the china deal which feel through. I'm not a finance person, so I can't address the large number of shares and its implications. Can someone post an analysis/article that addresses that?
The .29 for the secodary offer is bogus. It was .45 $AUD. Don't get hung up on the number of shares - in the end earning are what count. Many Asian stocks run very high shares counts and they seem to like it that way. US investors are not the only ones.