Lynas Rare Earths (ASX: LCY) (OTCPK: LYSCF) shares are up some 4% on the day. LCY shares are still reacting to the $20 million Australian government grant to aid in building that apatite circuit at Mt Weld. We're very dubious indeed about the value of such deployment of taxpayer funds. Either such an apatite circuit is value additive in wich case Lynas can pay for it themselves or it isn't and therefore it shouldn't be done (the truth is that it is, it's the politicians who have been suckered into paying for it. That's beneficial to Lynas of course).
Our concern about Lynas though is more about the longer term. We'd note that we did get this right the last time around, back in 2010. China restricted rare earth exports, rare earth prices soared, the world woke up and mined more rare earths outside China. Two mines got funded. One was Molycorp that managed to go bust again a few years later. The other was Lynas (it was more their processing plant that got funded) and they had to be near entirely recapitalised. For the truth is that rare earths simply are not rare. So, pricing rare earth miners on some scarcity value for rare earths does not work in the medium to long term.#
It's entirely true that non-China mines are in short supply, non-China processing capability is in short supply, but those are things that can be solved with capital and effort - exactly what will be produced by the current rare earth prices.
Lynas Rare Earths share price from ASX
So, are there going to be many more rare earth miners? Our answer is yes, of course there are. Just looking at the ionic clays there have been at least 10 announcements of finds just on the ASX alone in the past 3 months - OD6, Australian Rare Earths being only a couple of them. High prices for rare earths simply are not going to last - in our opinion at least. Production of the magnet metals will, we insist, get well ahead of demand thus crashing prices. We do, in fact, think that the traditional - ie, hard rock mining - rare earth production methods are likely to be driven entirely out of business. Sure, it might take a decade or two for that to happen but we really are insistent that we think this is the likely outcome.
Rare earths simply are not rare. Given the new attention being paid to looking for them, they're not even difficult to mine any more. The scarcity value is going to disappear and that just doesn't bode well, in the long term, for Lynas.