Why Lynas Corporation Limited shares have soared 43% in the last week

Rare earths oxides producer Lynas Corporation Limited (ASX: LYC) has seen its shares explode upwards, rising more than 2% today, and around 43% since July 23.

The share price has almost doubled since hitting a low of 11 cents in late May, on the back of a new CEO, Amanda Lacaze, and a new plan to make to troubled company profitable.

To recap, Lynas owns the Mount Weld rare earths mine in Western Australia, and a state-of-the-art processing facility in Malaysia referred to as LAMP (Lynas Advanced Materials Plant). The company began commercial production of rare earths products in June 2013, but is struggling to get production costs down, while at the same time, aiming to ramp up production to 22,000 tonnes of rare earths oxides.

Rare earths oxides (REO) are used in many new technologies, such as hybrid vehicles, wind turbines, and increasingly smaller digital devices, such as digital cameras, televisions, magnets and the like. Rare earths are not actually ‘rare’, in fact they are among the most abundant materials on earth, but finding them in commercially viable quantities is the key.

For many years, China has been the major producer of rare earths (83%), with just two producers outside the country; one being Lynas, the other being US-listed Molycorp. Both have suffered as rare earths oxide prices have crashed in the past two years, the burden of heavy debt loads and manufacturers seeking substitutes for rare earths. Samsung recently initiated a research project focused on finding alternatives to REO.

In 2011, a basket of REOs fetched US$153/kg after China stopped exports to Japan, but the price has steadily fallen to under US$30/kg according to Arafura Resources Limited (ASX: ARU), and there’s no sign that prices will ever return to the highs set in 2011.

Still, Peak Resources Ltd (ASX: PEK) estimates that magnet sector demand for rare earths is set to grow at above 10% over the next five years, which should provide a glimmer of hope for Lynas and its shareholders. Lynas management are also doing their part, cost cutting, renegotiating supplier contracts and improving processes. Add in the fact that Molycorp appears to be on its last legs, and could declare bankruptcy at any day according to some reports, and Lynas has a few more positives.

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