Lynas Corporation Limited v Liquefied Natural Gas Limited: Should you buy?

Which is the better shot in the dark?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Have you heard about the hot new Australian resources company that's going to build a state-of-the-art processing facility abroad and make huge profits for investors?

Actually there are two Aussie businesses looking to strike it rich fitting that description, step forward Lynas Corporation Limited (ASX: LYC) and Liquefied Natural Gas Limited (ASX: LNG).

Recent investors in each might have differing outlooks on life right now though, given Lynas' shares have plummeted from $2.55 in the autumn of 2011 to 20 cents today, and LNG Ltd has returned serve by seeing its shares rocket from 20 cents this time last year to $3.65 today.

Interestingly Lynas could claim to have a lower operational risk profile, given its production facility is now processing the rare earths materials it sells on market. Whereas LNG Ltd's proposed Magnolia site in Louisiana, USA, is yet to receive full regulatory approval, let alone commence construction. Indeed, operational start up is estimated to to be around the time of the next soccer World Cup in 2018.

Lynas' rare earths facility was plagued by regulatory and administrative delays resulting in cost blowouts, operational bottlenecks, more debt and capital raisings. All the while the price for its much trumped rare earth oxides products fell away to create a perfect storm that saw the share price lose around 85% of its value from the peak an excited market drove it to.

Of course a sustained recovery in the market price of the rare earths products Lynas processes may see it rebound yet, but now operating under perilous amounts of debt it remains a high risk proposition with a worrying track record.

LNG Ltd meanwhile will be hoping to show Lynas how it's done and in liquefied natural gas has a product likely to remain in strong demand long into the future. The relatively high cost of converting gas into a liquid form for transportation has hindered its commercial development in the past, but LNG Ltd hopes its technologically-innovative liquefaction services will be its ticket to big profits.

The trump card appears to be the technology that the Perth-based company says allows it to process natural gas into liquid form in a highly productive and cost efficient manner. Shareholders buying at today's price of $3.67 will be taking a leap of faith the company is able to deliver on its plans without undue delays.

The key to making money in the resources sector is identifying companies trading on great valuations relative to their risk-adjusted potential, which suggests investors may be best advised to watch how these two progress from the sidelines for now.

Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »