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Comparative analysis of Lynas Corporation (LYC.AX) and Greenland Minerals (GGG.AX) using the most recent financial reports and market disclosures of both firms

Term Paper 2013 18 Pages

Business economics - Investment and Finance

Excerpt

Table of Contents

Executive Summary

1. Introduction

2. Corporate Background
2.1 LYC.AX
2.2 GGG.AX

3. Financial Ratios
3.1 Profitability
3.2 Liquidity
3.3 Debt Utilization
3.4 Price/Earnings
3.5 Appraisal

4. Commentary
4.1 Operational Issues
4.2 Financial Issues

5. Recommendation
5.1 Remarks

6. References

1. Introduction

The following discourse will provide a detailed examination on the financial performance of two competing Australian-based mining firms, Lynas Corporation Limited (LYC) and Greenland Minerals and Energy Limited (GGG). Both of these companies are involved in the exploration and extraction of rare earth minerals, a group of approximately 16 elements which are gaining in prevalence in the world market due to their increasing application in energy and technology sectors. These specialty metals are unique in terms of their physical and chemical properties which make them essential in the production of various modern technologies like wind turbines, oil refinery and medical applications as well as consumer products such as laptops, ipods, flat screen monitors or hybrid cars. (GGG, Company Presentation, 2011)

illustration not visible in this excerpt

Source: (Haxel et al., 2002)

Until recently, China supplied over 95% of the global rare earth market, but in a turn of events, the Chinese government imposed an export quota on these minerals on account of an increasing domestic market share in high-technology products which are dependent on rare earths. This has caused an increase in prices, which presents opportunities to other international mining companies who wish to capitalize on the global supply shortage. LYC and GGG are two corporations who have set up different mining projects across the globe in an attempt to become the next global industry leaders.

2. Corporate Background

The ensuing section provides a brief summary concerning the history, current activities, organizational structure and politico-legal challenges of both companies.

2.1 LYC.AX

Established by Nicolas Curtis in 1983, LYC began its venture into the business world as a private company called Yilgangi Gold NL which specialized in gold mining. After a name change in 1985 and going public on the Australian Securities Exchange (ASX) in 1986, Lynas eventually sold off its gold division in 2001 to focus its mining activity exclusively on rare earth minerals (InvestSmart.com, 2011). The firm will be marketing the minerals through its registered brand name Rare Earths Direct (RED), which is intended to become a global symbol for quality and continuity of supply (Lynas Corporation Limited, 2006). Although headquartered in Sydney, the firm’s corporate structure shows that its operations extend well beyond city limits.

illustration not visible in this excerpt

Source: (Lynas Corporation Limited, Financial Report, 2012)

LYC currently lists two major operations: (1) A concentration and mining plant in Mt Weld, Australia, which contains one of the largest and highest grade known deposits of rare earth minerals in the world and (2) the Lynas Advanced Materials Plant (LAMP) in Kuantan Malaysia, which has recently finished construction and is scheduled to commence its mining activities this quarter. Although the organisational chart shows that the company owns entities in Africa, the state of Malawi is currently challenging LYC for rightful ownership of those rare earth deposits (West, 2011).

Japanese rare earths trading giant Sojitz signed an agreement with LYC in 2010 to export over 3,000 tons a year of minerals from their mine in Mt Weld, with an aim to increase shipments to 9,000 tons a year by 2013. The year after that, LYC has also signed a letter of intent to establish a joint venture with German conglomerate Siemens, which requires rare earths to produce energy-efficient drives and wind turbines. (Chambers, 2011) Japan’s Mitsubishi UFJ Financial Group has also taken a 9.99% stake in LYC.

Over the last two years, LYC had to deal with numerous allegations concerning potential environmental issues that may be caused by its Mt Weld and LAMP projects. The company is still facing pressure from the Australian Stop Lynas! campaign and Malaysian political social activists who believe that the extraction and processing of rare earths may pose a risk in its potential to yield radioactive waste and toxic chemicals (Stop Lynas!, 2012). However, Malaysia’s Atomic Energy and Licensing Board (AELB) granted Lynas the operating license in their country, stating that there was no sufficient scientific or technical justification for shutting down the plant on account of environmental risks. (Lynas Corporation Limited, 2012)

2.2 GGG.AX

Greenland Minerals and Energy Limited was founded in 2007. Although the company offices are located in Perth, its mining activities are outsourced to the Ilimaussaq complex in southern-most Greenland, a geological environment that boasts prolific resources of rare earths, uranium and zinc. The company operates four projects in the area, though it currently devotes most of its resources to Kvanefjeld, a source that contains over 6.6 million tonnes of rare earths; like Mt Weld, this is one of the largest rare earth deposits in the world. The other three projects are called Zone 2, Zone 3 and Steenstrupfjeld, each of which are still being explored for its mineral potentials.

Until August 2011, Greenland shared control over the exploration license in Kvanefjeld with the Westrip Holdings Group in a joint venture, as illustrated in the chart below.

illustration not visible in this excerpt

Source: (GGG, 2010 Annual Report, 2011)

However, following several legal disputes between the two partners, GGG bought its remaining 39% ownership share back for over US$50 million which puts the firm back into full control of its operations (Mcilwraith, 2011).

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Details

Pages
18
Year
2013
ISBN (eBook)
9783656641438
ISBN (Book)
9783656641421
File size
869 KB
Language
English
Catalog Number
v271568
Institution / College
The University of Chicago
Grade
A
Tags
comparative lynas corporation greenland minerals

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Title: Comparative analysis of Lynas Corporation (LYC.AX) and Greenland Minerals (GGG.AX) using the most recent financial reports and market disclosures of both firms