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The Lynas Rare Earths Ltd (ASX:LYC) share price has seen a considerable 33% decline over the past 12 months; however, experts suggest that the stock may be positioned for a rebound. As a notable rare earth miner listed on the ASX, Lynas holds a crucial role in supplying essential inputs for global manufacturing supply chains. This is particularly significant in the context of digital age technologies and green technologies, such as electric vehicles and wind turbines.
Investors, especially those tracking ASX mining stocks, are closely monitoring Lynas as it navigates market conditions. The potential for a rebound in Lynas shares underscores the importance of rare earth elements in various high-demand industries. As markets evolve and demand for green technologies continues to grow, Lynas may play a pivotal role in shaping the trajectory of ASX mining stocks within this strategic sector.
What went wrong?
The financial results for the second quarter of FY24 have contributed to investor concerns. Sales revenue for the period was A$112.5 million, down from A$232.7 million in the same quarter of FY23 and A$128.1 million in the first quarter of FY24. Closing cash and short-term deposits also decreased to around $686.1 million at the end of December 2023, down from approximately $900 million three months prior and a year earlier. The average selling price for production in the FY24 second quarter dropped to A$28.7 per kilo, compared to A$58.4 per kilo in the FY23 second quarter.
Is Lynas an opportunity?
Despite the recent challenges, the broker UBS sees potential in Lynas and has assigned a price target of $9.20 on the stock, suggesting a potential rise of around 60% over the next 12 months.
UBS highlighted that Lynas received a variation of its Malaysian operating license, allowing it to continue operations without disruptions. The broker believes this will help Lynas meet its guidance for the downstream post-expansion ramp-up.
Key reasons for UBS's positive outlook include Lynas's "market-leading" position in the rare earth space, increasing capabilities as a processor of third-party feedstock, and potential government/funding-related tailwinds.
While UBS acknowledges mixed signals regarding the commodity's price outlook, it expects NdPr (neodymium and praseodymium) demand growth of 25% in 2024. It notes potential challenges such as slowing China NdPr quota growth and uncertainties related to the discipline of Chinese domestic rare earth producers.
Despite the positive view, the Lynas share price has faced headwinds, with an 18% decline since the beginning of 2024.
In summary, Lynas Rare Earths presents an interesting opportunity, according to UBS, with potential for growth based on its market position, processing capabilities, and anticipated demand growth. However, investors should remain mindful of industry challenges and uncertainties in the commodity market.
