Why Lynas Corporation Limited’s shares have roared 21% higher today

This stock still has significant risks attached to it despite the positive company update.

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Rare earths miner Lynas Corporation Limited (ASX: LYC) released a Production Update today which set a rocket under the company’s share price. The release confirmed that commercial production and sales of Rare Earth Oxide (REO) products at Lynas’ plant in Malaysia in the March quarter would be higher than in the prior December half and in line with  previous guidance.

 

It would appear the market has been sceptical about Lynas’ ability to ramp-up production at its Malaysian facility with the stock price still over 25% lower this calendar year despite today’s rally. However, today’s update and management’s confirmation that it expects to achieve an annualised production run rate of 11,000 tonnes during the June quarter look to have soothed investor concerns somewhat.

 

Lynas’ share price performance today is in stark contrast with most of its materials sector peers. Heavyweights BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) are both over 1% lower. Meanwhile gold stocks have come under heavy selling with major gold producer Newcrest Mining Limited (ASX: NCM) down nearly 4%.

 

Foolish takeaway

An investment in Lynas still has plenty of risks attached to it. The recent earnings results show Lynas had revenues of just $14.6 million and losses before tax of $59.3 million for the half. The company also stated that the “financial statements have been prepared on a going concern basis” which should always be treated as a red flag by investors.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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