What are MM’s current View on Lynas (LYC)?

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Question asked 17/03/2023

What are MM’s current View on Lynas (LYC)?

Hi James/Team, I am a long term investor in LYC selling half of my holding back in December 2021. I note that LYC are; 1) currently Appealing the recent decision by Malaysian Authorities not to extend a previous approval; 2) have pushed through a support level at around $7.00; 3) have today plumbed what appears to be the next support level around $6.50; and 4) are caught up in the general market malaise emanating from the collapse of SVB in the U.S. On the flip side of this LYC appears to be well funded, is strategically positioned to take advantage of the West’s move away from China when it comes to “Critical Minerals” (specifically Rare Earths) and, of course, produce minerals which are critical to the world’s drive toward Zero emissions. With all that said, given the continued decline in LYC’s share price, I am interested in how Market Matters views LYC at this point in time. Regards, Ian Porter

Answer

Hi Ian,

The short of it is we like Lynas (LYC) and are keen on adding to the position in the rare earths company.

To your point, we aren’t attributing any value to Malaysia overturning their licence amendment so any progress here is a free kick for our thesis. There is some risk that the Kalgoorlie plant isn’t up and running ahead of the 1 July deadline for the Malaysian licence change, but this seems fully priced in.

The rare earth market has been hit from two sides in the last few weeks. Firstly, Tesla (TLSA US) said they were looking to remove rare earths from the engines of their next generation cars. Secondly, the US & the EU have been working on a deal that would mean European firms see the same benefits many Australian firms, including Lynas, have enjoyed, diminishing the prospects for Lynas.

Tesla is just one customer in one market for rare earths, so we see this issue as over done, particularly given they have provided little detail around how batteries will work without rare earths. The EU & US deal will see an improvement of supply in the market ex-China, but this is likely some years away from taking affect.

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Lynas Rare Earths Ltd (LYC)

LAST UPDATED 16/03/2023 11:46

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