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Why the Lynas share price jumped today

The Lynas Corporation Ltd (ASX: LYC) share price gained 9.1% to 12 cents today, although still down for the week.

But the rare earths producer has staged a remarkable comeback, with shares rising more than 70% since the start of the year. In fact, in the past three months the share price has rocketed up 168% (see chart below) and earned the company no less than three speeding tickets from the ASX.

Lynas share price

Source: Yahoo Finance

Lynas’s most remarkable achievement is reporting a cash flow positive quarter for the three months to end of September – despite rare earths prices continuing to remain at rock bottom prices.

China remains the world’s largest producer of rare earths, which are actually a group of 17 different metals, used in many applications, most notably batteries, magnets, smart phones, televisions, cameras and other electronic equipment as well as in the clean energy sector.

The problem is that despite the name, rare earths are actually quite plentiful, but are rarely found in commercially viable quantities. An additional issue for producers is that current market demand is low, allowing increases in supply to easily push prices down.

Foolish takeaway

Despite a quarter of positive cash flow, Lynas’ bigger problem is the amount of debt the company holds on its books. Until the company can make a meaningful dent in that, buying shares now is a highly speculative proposition.

 

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

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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