Why the Lynas Corporation share price soared today

The Lynas Corporation Limited (ASX: LYC) share price surged 20.7% to 7.0 cents, after reporting that it had exceeded production targets.

The rare earths producer says that because it beat those targets and was making principal payments on its debt facility, it had also earned an interest rate reduction on its JARE senior debt facility – from 6.5% to 5.7%.

Lynas produced 3,911 tonnes of Neodymium-praseodymium (NdPr)- ahead of the target of 3,840 tonnes. As part of its debt agreements, Lynas has specific 6-monthly targets. As the company beat the second NdPr production target, it earned a reduction of 0.5% per annum.

Lynas also repaid the US$2 million in May 2016 that was due to be repaid. The miner and producer also paid into its restricted accounts USD$5.74 million (A$8 million) from cash flow – earning a further 0.3% discount.

It’s a good sign from Lynas, and rising rare earth metals prices are also helping. NdPR prices were up 10% in June from May, according to Nikkei Asian Review, and at their highest level since July 2015. Other rare earths are also rising.

The Nikkei also reports that China is boosting its domestic reserves, and plans to create a separate national reserve by purchasing additional rare earth metals from its six major domestic suppliers. That could see demand from other countries rise – boosting prices for Lynas’ rare earths products.

Demand is also expected to rise – neodymium is used in high-performance motors for electric and hybrid vehicles as well as for industrial robots.

There’s still a long way for Lynas to go and it’s not yet out of the woods. The company really needs rare earth prices to soar much higher before it can breathe a sigh of relief.

Investors may be jumping in prematurely.

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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

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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