Just 20 months after The Golden Investor’s first update on Lynas Rare Earths, the stock of this Australian miner has hit multiyear highs on the Australian Securities Exchange (ASX). Growing market demand for mainly Neodymium, crucial for the now booming semiconductor industry, has turned Lynas Rare Earths into an extremely essential miner. As demand for electric vehicles and other technological equipment surges, profits continue to jump.
Capital Thirsty Miner Has Exceptionally Good Balance Sheet
The ultimate scenario for any company has led to a tripling of profits compared to last year, as increased production and selling prices have led to record profits. It should be noted that Lynas has not endured very hard setbacks due to the pandemic. This year the average selling price for its products has almost doubled while also production of Neodymium-Praseodymium (NdPr) doubled to 1,393 tonnes last quarter. While demand stayed up during last year’s lockdowns, Lynas had to temporarily shut down its processing plant in Malaysia, resulting in last year’s $19.4 AUD million loss. However, this year the company posted a record $157.1 AUD million profit for the year ended June 30. And prospects remain good as demand continues to grow and competition is struggling to ramp up.
Trouble In Malaysia Has Been Averted
In one-and-a-half year a lot has changed, where back then Lynas was in legal battle with the local government and communities for a license extension for their low-level radioactive plant, it is now considering to open a second processing plant in Malaysia as business is growing. Lynas ultimately received permission to continue to operate its Malaysian plant, but has gotten until 2023 to relocate the facility. The company is awaiting the last phase of getting full approval to open up a facility in Kalgoorlie, Australia. Their plans to open a processing plant in Kalgoorlie have gone into second gear as the Australian government has awarded the company a grant to implement the newest processing methods, in an effort to reduce dependence on China. The Kalgoorlie facility will then process the rare earth concentrate from the Mount Weld mine, taking over processing from its plant in Kuantan, Malaysia, where the company currently is processing at a reduced rate due to radioactive waste concerns on their site.
The United States Making Deals To Ensure Metal Security
This January, Lynas signed an agreement with the U.S. government to build a commercial light rare earths separation plant in Texas, as the world-leading country is pushing to secure domestic supply of essential minerals that China currently dominates. Production of rare earth minerals, used to make military equipment and electronics, received a push in the U.S. after the trade war with China fueled worries that Beijing may use its dominance to restrict supply. The deal comes after Lynas secured initial U.S. Department of Defense funding for a heavy rare earths separation facility in Texas in April 2019, which it is developing with joint venture partner Blue Line. This is due to the fact that in the current processing operations, heavy rare earths are not separated. The new processing plant in Hondo, Texas will be the largest rare earth separation plant in the world, and will separate both medium and heavy rare earth products.
Rare Earth Boom Could Bring Other Players
Currently, the only competition Lynas faces is from Chinese producers. But as governments worldwide are becoming aware of the necessity to ensure a steady influx of rare earths the investing climate has changed. The last few years a lot of capital has been granted to incentivize companies to develop new plants and processing technologies. However, like Lynas CEO Amanda Lacaze emphasizes, mining and especially rare-earth mining and processing is very capital intensive. New players should not underestimate risks. Rare earths are not as rare as they seem, however, extracting them is both polluting and challenging, making it an extremely risky capital-crushing business.
Investors looking for diversification should consider buying Lynas Rare Earth (ASX:LYC) stock. Due to its expansion drift and increasing governmental support impressive growth rates can be expected. Even if prices for its products will drop due to increased supply, Lynas will have a pivotal place in geopolitical terms. If the company effectively ramps up supply it could increase its already growing market share. The only competition it might face in the West is from MP Materials (NYSE:MP), but as Lynas is multiple steps ahead nothing seems to be in the way for the flourishing company.
Disclaimer: The writer of this article holds Lynas Rare Earths Ltd (ASX:LYC) stock, this article should not be interpreted as investment advice or anything like that.