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Why Lynas Corporation Limited shares soared 10% today

Lynas Corporation Limited (ASX: LYC) shares continue to soar, rising another 10% today to 17 cents – despite the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) losing 0.7%.

Macquarie Group Ltd (ASX: MQG) and QBE Insurance Group Ltd (ASX: QBE) suffered the largest falls among the top 20 ASX stocks, but three of the four big banks and BHP Billiton Limited (ASX: BHP) also saw their shares sold off.

Lynas, the under pressure rare earths miner may have brought itself some breathing space, thanks to its recent capital raising, and investors appear to have taken a positive view of the company’s future. And as we also mentioned in this recent article, Chinese buyers could be sniffing around the company – with the aim of taking possession of its advanced rare earths processing plant in Malaysia.

Chinese acquisition activity has been growing recently, particularly in Australian resource projects, as the country aims to secure a solid and stable supply of resources for its large manufacturing sector. And rare earths oxides are used in many high tech products including wind turbines used to generate green energy, consumer electronics and hybrid electric vehicles.

Lynas’s shares have now risen more than 30% in the past five business days, but are still down 42% since the beginning of the year, so there’s a long way to go to get to its 52-week high of 56 cents.

The risks have somewhat reduced for Lynas, as it ramps up production of rare earths oxides, which should see production costs fall further, with the aim of becoming cash flow positive.

All the company needs now is for rare earths prices to recover substantially. The price for cerium oxide, the most abundant oxide at Lynas’s Mount Weld mine, has fallen 90% since its peak in 2011, while Lanthanum, the second-most commonly found rare earth at Mount Weld saw its price drop 13% this year, according to The Malay Mail Online.

It’s too high risk for me, and there’s a safer bet than Lynas…

 

It's not too late! The Motley Fool has issued a firm "BUY" rating on this small but ultra promising ASX company… and you can get the name and code FREE right now. Click here for your free copy of "The Motley Fool's Top Stock for 2014."

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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