Seeking Alpha

chihawk's  Instablog

chihawk
Send Message
  • First Unrecorded Lynas Investor Call 7 comments
    Feb 10, 2011 12:19 AM | about stocks: LYSCF, MCP

    The second Lynas investor Call is recorded at:
    http://www.thomson-webcast.net/au/dispatching/?event_id=ece10a04d28f31163d1ad0cd918cecf2&portal_id=54f9a94a97b046b471cc1d7e006388cb
    The First Cal was late night North America and unrecorded so I’ll give a general overview here.

    Lynas CEO, Nicholas Curtis and Lynas are obviously very focused on their stock as an investment rather than a trade. They know they have the best fundamental story. Lynas emphasizes that fundamental side by taking a very straightforward fact based approach at every turn. But it goes much further than that. One Q&A question was about a future shareholder distribution. And it was asked and answered in a manner that suggests Lynas hopes to be a steady company probably with a good sized dividend/buy back in the long term future after Lynas matures. These guys are doing none of the things that boosts short term share price by adding hot money to the stock. I know LYC seems volatile and is currently a high flyer.

    But consider this:

    1)     Lynas will not consider a list in North America at least until they are cash flow positive. (Prior to that, the listing would mainly attract traders)

    2)      Lynas uses forty year old proven technology because they know it will work. They will not make wild promises about big margins without establishing the facts. Although Curtis said they will recycle reagent and other materials which is a cost savings.

    3)      They will not expand production until they line up the customers that will use the oxide. They will not change their business model to compete with Molycorp in some sort of bizarre arms/production capacity overbuild that would eventually flood and hurt the rare earth market.

    4)      Everything is measured with Lynas and nothing is hyped. With every other rare earth presentation or conference call I hear, very little is measured either because the company is in its infancy or it is short term thinking and pumping valuations. And with the other rare earth stocks the door is left wide open for the investor to dream and hype the stock straight into the sky. Curtis tells you what he knows and forces any honest listener to remain grounded in the facts.

     

    So what does this mean to us? Well, quite a bit. First, on the risk side consider the most common death of a junior stock: Most often the juniors hype the story to new heights, than the directors sell down most of their share issuance and declare the project "on hold" or unfeasible at current prices as their stock goes to near zero. This makes for a good trade during the hype, but if you don’t exit the story fast enough you get crushed. By the way this is easier said than done. The second major risk is long term oversupply. I personally am not worried about this but others are more concerned. But if Lynas develops capacity based on the long term contracts they sign rather than trying to be as big as possible, they should remain the best stock even when the rare earth market comes back to planet earth some day in the future. And even if like me, you are not worried about oversupply, it is great business to sign long term quarterly spot based contracts when the market is in your favor. The current rare earth supply contracts are some of the best I have seen for any miner. Lynas’ approach takes advantage of this fact and I like that a lot.

    So how does all of this effect my current investment/trading strategy? Well, currently it means Lynas is a safe add and a long term hold. It will continue to be my largest holding. I mean it is hard to beat a fast and steady grower with a disciplined long term outlook that is still outperforming my Apple position. And to be honest, I do not see that growth changing and the length and size of Lynas’ growth timeline with its reasonable valuations is fantastic.

    But if I decide to be dumb, which I often do, I can use some new money (trader capital) to trade in a junior high flier and flip it when it breaks the 50 moving average or some other simple higher lows trend line I can draw without knowing squat about technicals. It’s more than ironic that Molycorp is located not far from Las Vegas when you consider this type of trade. And yes I am saying Moly is a trade right now. The fundamentals are years away and at ten times book I'd like at least a slide the next time they want to say they will produce at half the cost of current production through recycling. I mean a simply slide showing the recycling chart is a reasonable request. And MCP shareholders also deserve a slide with a clear timeline from present to 40,000 tpa capacity. And if you want to be in Curtis' universe of transparency you might want to indicate the percent of this production that is sold in long term contracts. Still waiting for these answers from MCP. But now that I sold I doubt I'll get them.
    Anyhow, when I exit my junior miner trades I’ll no doubt roll the capital into more Lynas as it gets hit with the rest of the rare earth market on down days. In this way I keep most of my money in the best story and add when the sector gets hit even though a declining Lynas stock remains fundementally strong.



    Disclosure: I am long OTCPK:LYSCF.

    Additional disclosure: No position in Molycorp. No future plans to start a position at this time.
Back To chihawk's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (7)
Track new comments
  • H. T. Love
    , contributor
    Comments (17298) | Send Message
     
    Great considerations.

     

    Being an old (literally) southwest desert boy (originally), I was impressed by the no-nonsense tenor that Curtis presented. Reminded me of how things were "back then" in my home town.

     

    In this market, I spend most of my time trading, but Lynas is one that I had decided to hold and grow. Your thoughts reinforce my decision.

     

    Thank you for taking the time.

     

    HardToLove
    10 Feb 2011, 06:48 AM Reply Like
  • optionsgirl
    , contributor
    Comments (5045) | Send Message
     
    Thank you for your update. Chihawk. Do you have an idea about why Curtis sold so much Lynas stock in December?
    10 Feb 2011, 08:08 AM Reply Like
  • chihawk
    , contributor
    Comments (2099) | Send Message
     
    Author’s reply » Curtis,
    Was short and firm on that Q & A question.
    Paraphrasing:He is totally committed to Lynas. He still has a large holding is Lynas (counting his stock options the sale was about 14% of his holdings). He has been committed to Lynas for years (8-10?). He absolutely believes Lynas is a value now with a very strong future.

     

    Then he mention that the shares were issued to him and he was simply exercising his rights as the holder. He said in the first call he was diversifying and in the recorded call he talks about being in a stock for a long time already.
    Lastly, he concluded in both calls that he was surprised at the reaction to the sale.
    My conclusion: This was a bad PR move that he realizes now. Curtis is a great CEO, but he is not the mea cupla type. I bought hand over fist after the announcement because the fear was silly. Yes, as a trader I would have sold down to my core position if Curtis would have sold more or another director would have sold. But when neither of those things happened I figured Lynas is too far along and too fundamental for their to be this kind of big exit.
    Lastly, if two directors sell within a week of each other in MCP, AVL, or REE I'll load up on long put options. Just MO.
    10 Feb 2011, 10:33 AM Reply Like
  • doubleguns
    , contributor
    Comments (7887) | Send Message
     
    Nice follow up to the call.
    10 Feb 2011, 08:15 AM Reply Like
  • omgwen3rds3
    , contributor
    Comments (354) | Send Message
     
    Chihawk, I am on the same boat as you, I have a tonne of cash sitting on my interest account right now to just specifically buy LYC on rainy bad days. Oh how much i wish they crash due to some unrelated news like the war in Egypt whatever!
    17 Feb 2011, 09:57 AM Reply Like
  • chihawk
    , contributor
    Comments (2099) | Send Message
     
    Author’s reply » omgwen,
    It's us versus the world sometimes brother. But we will either sink or swim together. All the same I like our approach and our chances.
    17 Feb 2011, 10:10 AM Reply Like
  • omgwen3rds3
    , contributor
    Comments (354) | Send Message
     
    At some level i sympathize with them because they have been conned by the media, the so call experts and the "experts" people making wonderful claims on MCP pie in the sky about how great MCP is.

     

    So after all these reports and getting brainwashed, they started buying the stock thinking it a good investment and Feel Good about themselves. Then all the sudden we come along and basically tell it to their face that no the ygot it wrong and where is the HARD EVIDENCE, the facts figures and Phots of the plantbeen built and the only excuse they can give us is WEll Joe Blog down the street says its a good investment and appparently he is an expert so i trust him. Well that is just isnt good enough!

     

    I feel that we are pulling people out of the Matrix and some people just cant handle the truth.

     

    PS Also if you have any technical questions for Nick Curtis you can email him and he will PERSONALLY answer your emails. I know because i have send him a few questions in the past myself.
    17 Feb 2011, 10:29 AM Reply Like
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.