Investing

Lynas Corp Ltd (ASX:LYC): Rare-Earth Opportunity

As the only profitable rare-earth metal miner outside China, Lynas Corp Ltd (ASX:LYC) almost doubled in value when the trade war between the USA and China escalated. Investors speculated on potential restrictions on rare-earth metals. Reminding us of the situation in 2010 when China cut its export quotas significantly lower resulting in a rare-earth drought which led to Lynas Corp stock soaring to a five-fold of their 100-day moving average.

Back then China held over 95% of the rare-earth market, in the years following companies who suffered from the shortage increased their interest in rare-earth miners outside China. But because rare-earth mining is a cost-intensive and has a hefty impact on the environment there haven’t been a great rise in rare earth mines outside China. Actually Lynas holds a monopolistic position as only big and viable rare-earth miner outside China.

American Reliance on China

With no rare earth miners in the USA, the last one went bankrupt in 2015, the American government started an initiative to stimulate rare earth mining in the United States. Where the sector used to be pushed out of the United States because of the environmental issues and regulations coming with rare-earth mining, now afraid of losing the essential supply of rare earths, the sector is welcomed back into the United States.

This summer the Australian prime minister met with Donald Trump, discussing this issue since rare-earths are essential elements in electric vehicles to mobile phones, but also needed for national defense in night-goggles, several weaponry and laser systems. So pretty essential, that’s why in November last year Australia and the United States had signed a agreement to collaborate on the critical minerals. Not long after, the U.S. Army allegedly had plans to fund construction of rare-earths processing facilities. Lynas has also announced its intention to build a heavy rare earth separation facility, which would be the only facility of its type outside China. Where one may be built in Texas, since Lynas and Blue Line entered into a memorandum of understanding last year to built a processing plant in a joint-venture in the United States. They are expected to be one of the contenders for this funding.

Malaysian Troubles

The position Lynas Corp (ASX:LYC) holds looks good, however on the short term there is still volatility possible since Lynas is currently in dispute with the Malaysian government. Their billion-dollar processing plant in Kuantan allegedly had a buildup of toxic and radioactive waste in a landfill on their site. The Malaysian government set new waste removal conditions for their license to end this long running dispute. In September Lynas Corp got a 6-month extension of their operating license which is set to expire on 2 February this year, although it’s clearly visible that the Malaysians are done with all the waste being dumped in their country. To meet the Malaysians Lynas made plans to make a initial processing plant in Australia to remove some of the low radioactive material before shipping their earths to Malaysia for further processing. In September last year Lynas signed an agreement with the city of Kalgoorlie to look at potential sites for this plant.

The Golden Investor thinks Lynas Corp Ltd (ASX:LYC) is on a good way to resolve their problems with the Malaysian government and is despite all problems and Chinese pressure making a profit. Moreover they hold good odds in potential expending their business to the United States and further increase their strength.

Disclaimer: The writer of this article holds Lynas Corp Ltd (ASX:LYC), this article should not be interpreted as investment advice or anything like that.

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