Is Lynas an opportunity?

Commodity prices have fallen across many resources, and now it seems rare earths metals are being hit. Prices for rare earth oxides fell 12% in May.

Rare earths producer, Lynas Corporation (ASX: LYC) says its refinery in Malaysia will be operating at reduced capacity as the current rare earths market remains subdued. Prices this calendar year have continued to fall, although the company notes that some signs are emerging that prices could be stabilising. Lynas still expects demand to grow at above GDP rates over the medium to long term.

As a result, Lynas has implemented a program to reduce operating costs and expenditure and is optimising production at a lower capacity level, which is expected to last until rare earths prices are higher.

Lynas is the owner of the richest known deposit of rare earths in the world, Mount Weld in Western Australia. The ore is mined by traditional open pit methods and then processed to produce a concentrate, which is shipped to Lynas’ Advanced Materials Plant (LAMP) in Malaysia. Here the concentrate is refined into the final products.

Rare earths are a set of seventeen chemical elements, including lanthanium, cerium, samarium, europium and terbium. While they are called “rare earths”, they are actually quite abundant, but are often of low quality and rarely present in economic concentration. They are increasingly used in many of today’s modern products, including iPhones, LCD and plasma televisions, disk drives and hybrid vehicles.

The “rarity” of commercial concentrated deposits of rare earths and a forecast of increasing demand has meant that several companies are now in the process of exploring for and developing rare earth projects. These include Australian companies Arafura Resources (ASX:ARU), Peak Resources (ASX:PEK) and Metallica Minerals (ASX: MLM).

Foolish takeaway

While Lynas has faced several issues in the past, primarily with its refining plant in Malaysia, the company is streets ahead of its Australian competitors, with an operational mine and processing facility. Should rare earths prices rise as demand increases, Lynas could be an opportunity at current prices.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.