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Date : 01/08/2023

Lynas Rare Earths



Market Cap : $6.12 Billion


52 Week Range : $6.020 - $10.300

Share Price : $6.99

Lynas is operating at record capacity and increasing its inventory as it gears up to migrate Malaysian operations to Kalgoorlie. We maintain a 'Buy.'

Company Analysis

Lynas Rare Earths (ASX: LYC) has had a fantastic 4Q23 – recording its highest ever quarterly production and easing some of the anxiety that markets have fixated on recently. NdPr production was at 1,864 tonnes, and Mt Weld delivered record quarterly concentrate production. As Lynas is working towards starting up the Kalgoorlie facility, it is important that they build up inventory to offset any lag in the migration of downstream operations from Malaysia.

While production was at records, external market dynamics, including softer demand for NdFeB magnets in Japan and China’s recent oversupply of La-Ce, resulted in lower market prices for rare earth materials during the period. The average Chinese domestic price of NdPr slid from $US86.60 ($129.70) a kilogram in the March quarter to $US60.30 a kilogram in the June quarter, and down from $US120.40 a kilogram in the same period last year.

During the quarter, the PrNd market price remained low, and demand from customers outside China decreased due to weaker demand for NdFeB magnets in Japan, particularly in the factory automation industry sector. Fortunately, Lynas was cushioned by existing long-term customer sales contracts, which helped mitigate the impact on their sales performance. Similarly, La-Ce prices continued to decrease due to the oversupply in China, while the demand for Lynas’ La-Ce product from key customers remained stable.

The demand for Heavy Rare Earths remained steady during the quarter, driven by strong demand for high-performance magnets used in traction motors. Prices for Dy (Dysprosium) began to rebound in May, and the future pricing trends are anticipated to be influenced by the economic recovery in China and the Chinese production quota for the second half of 2023.

Sales revenue was $157.5m and sales receipts were $188.9m, reflecting the lower market prices for rare earth products during the quarter. At the end of the June quarter, Lynas has over a billion in cash on its balance sheet.

The soft demand and high production have worked in favour of Lynas – enabling them to build inventory. The stockpiling works like insurance against potential teething problems in duplicating a portion of its downstream processing at Kalgoorlie in Western Australia, in response to regulatory demands imposed by Malaysia.

Source: LYC

The latest on Lynas’ Malaysia operations – Lynas received a variation to its Malaysian operating licence, which allows the Lynas Malaysia cracking and leaching plant to continue to operate until 1 January 2024. Lynas has since appealed against this last week.

Upstream Delivers at a Crucial Time

During the quarter, Mt Weld achieved exceptional concentrate production levels, setting a new record. This remarkable performance ensured an ample supply of concentrate for both the Lynas Malaysia plant and the inventory buildup for the upcoming Kalgoorlie Rare Earths Processing Facility.

The successful completion of Mining Campaign 4 during the same period resulted in the stockpiling of ore for future production needs. Additionally, the Mt Weld exploration program made significant progress. To date, the exploration efforts have included the commencement of reverse circulation drilling, which involved completing 97 holes spanning a total of 17,432 meters.

Downstream Operations show Lynas’ Strength despite Malaysia Challenges

Lynas Malaysia achieved a remarkable milestone by delivering record production levels. An impressive total of 1,864 tonnes of NdPr was produced during the quarter, marking the second consecutive quarter of record NdPr production by Lynas Malaysia. This showcases Lynas’ efficient operational equipment performance, effective management of upstream and downstream dependencies between Mt Weld and the Lynas Malaysia plant, and the ability to minimise significant downtime caused by external events.

Source: LYC

Kalgoorlie now ready for Production

Throughout the quarter, significant progress was made in the final major construction activities for the Kalgoorlie Rare Earths Processing Facility, with full plant commissioning already underway. The completion of the waste gas treatment plant represents the last major area required for the first production, and additional resources have been mobilised to expedite its completion.

The commissioning process has been divided into four phases, with the final stage 4 commissioning commencing in June. Key chemicals required for production have been received and stored in on-site facilities, and the first delivery of concentrate from Mt Weld has been processed to support the initial production phase. Additionally, crucial earthworks and on-site services, such as power, water, and laboratory facilities, have been completed, along with the on-site gas supply.

Lynas is now focused on achieving the target of first production of MREC (Mixed Rare Earth Carbonate) in September 2023. Furthermore, the record NdPr production performance during the preceding March and June 2023 quarters has allowed Lynas to build a substantial inventory of finished goods, ensuring the company can meet its key customers’ requirements.

Lynas will grow bigger with Mt Weld Expansion

The Mt Weld Expansion Project is advancing smoothly according to plan. The project’s schedule remains on target, with earthworks nearing completion and substantial progress made in concrete works. A formal approval of the Minor and Preliminary Works application was obtained from the Environmental Protection Authority (EPA) by Lynas in March, facilitating the progression of early works. Given Lynas’ strategic importance to the government, it’s a safe bet that approvals are more of a formality.

Furthermore, Lynas was awarded a $20 million grant through the Australian Government’s Modern Manufacturing Initiative Manufacturing Integration Stream. This grant will play a pivotal role in supporting the development of a new and innovative capability for processing apatite-rich ores from the Mt Weld ore body.


There are two main factors impacting Lynas currently, and the company is actively working to minimise their impact. The first concern is a regulatory headwind that Lynas is addressing to ensure minimal negative consequences. Although markets initially priced in a significant impact, the company’s consecutive quarters of solid production and inventory building have led to a share price recovery. Lynas has consistently demonstrated its ability to operate at a very high level, and the growing inventory is seen as a positive development for the markets.

The second challenge arises from weak rare earth prices, influenced by soft demand from green energy companies and the automotive sector, coupled with increased supply from China, the top producer in the market. While the electric vehicle industry has shown steady growth, the global market for traditional combustion engines is facing headwinds due to broader macroeconomic factors. Although global automotive sales are expected to rise year-on-year, they still remain below pre-pandemic levels, according to industry reports. Additionally, the wind energy sector, another significant consumer of rare earths, experienced a decline in new wind power capacity globally in 2022 compared to the previous year.

China, as a major player in the rare earth market, has taken measures to normalise the supply chain and enhance the flow of rare earth magnets, leading to improvements in supply. The country set a quota for the first batch of rare-earth mining in 2023, showing an increase of about 20% compared to the previous year, and its rare earth exports in June reached the highest levels in more than three years.

Despite the current challenges, there is a positive outlook for the medium to long term, with an expectation that demand for rare earths will rebound, leading to a rebound in prices. This favourable development will benefit Lynas, the largest producer outside of China.

More Support from the US Government

Lynas’ operations in the USA are surpassing initial expectations, and we foresee substantial long-term growth. Lynas is making progress on the construction of a rare earth processing facility in Texas, a significant strategic move.

The company has successfully acquired a 149-acre greenfield site in Seadrift, Texas, from Union Carbide Corporation, a subsidiary of The Dow Chemical Company. This site’s strategic selection was based on its advantageous location within an existing industrial zone, with access to a skilled workforce, potential customers, and efficient infrastructure and logistics. The site allows for the co-location of integrated Heavy Rare Earths and Light Rare Earths separation plants and also presents future growth opportunities, including downstream processing and recycling, to establish a circular mine-to-magnet supply chain.

The US Rare Earths Processing Facility in Texas, scheduled to be operational in FY2026, will cater to both the Department of Defense (DoD) and commercial customers. The facility will also be able to process feedstock from other sources once they become available and meet the necessary qualifications.

A significant milestone in this endeavour is Lynas signing a follow-on contract with the United States Department of Defense (DoD) for the construction of the Heavy Rare Earths component of the Texas facility. Sponsored by the US Government’s Industrial Base Analysis and Sustainment (IBAS) Program, this contract is aimed at supporting the development of a robust US rare earth supply chain. As a result of this contract, Lynas’ shares have surged by over 4% today.

The updated contract involves an expenditure-based arrangement, wherein all of Lynas’ construction costs that are properly allocable will be reimbursed. The US Government is expected to contribute approximately US$258 million to the project, an increase from the approximately US$120 million announced in June 2022. The update reflects detailed design work and cost adjustments made since the original design was completed.

This development reinforces the supply chain resilience for responsibly produced rare earths, which are crucial inputs for the tech industry in the USA, as well as meeting national security needs of the US and its allied nations. Upon completion, this project will establish Lynas as the sole large-scale producer of separated Heavy Rare Earths outside of China, significantly enhancing the diversification and security of the rare earth supply chain.

Our earlier report can be viewed by clicking here.


Lynas is operating at maximum capacity – producing record quantities at Mt Weld and processing record quantities in Malaysia. However, the LYC share price has been under pressure due to lower rare earth prices and the regulatory headwind in Malaysia that will lead to Lynas migrating its processing and separation operations from Malaysia to Kalgoorlie. The Kalgoorlie facility is ready to begin production in September. Lynas has been building up inventory and stockpiles to reduce impacts to customers as production takes time to ramp up.

In the USA, Lynas and the DoD have signed a new contract that will see Lynas be further reimbursed – bringing down project costs and strengthening strategic ties. Given this optimistic outlook and Lynas’ competitive position, we view current prices as an opportunity for patient investors. As such, we retain our ‘Buy‘ recommendation.


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