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Why the Lynas Corporation Ltd share price crashed 9% lower today

Lynas Corporation Ltd (ASX: LYC) was one of the biggest movers on the local market on Thursday, with shares falling 9% to $2.57, before partially recovering to $2.68 at the time of writing.

With no price sensitive announcement out of the rare earth miner today, the reason for the crash must be found in the results of elections in Malaysia, where the unexpected victory of opposition ended a 60 year power streak for the local National Front.

Lynas’ operations in Malaysia are fundamental for the business. The Lynas Advanced Materials Plant (LAMP) in Kuantan is where concentrates extracted at the company’s Mt Weld project are transformed in rare earth oxides, a product that is in high demand for its multiple applications, including in semi-conductors, batteries and electrical motors.

Concerns about political risks mounted in the lead up to the elections. According to the BBC, prior to the general election in 2013, the opposition promised to review the production permit that had been awarded to Lynas after a legal battle against environmental activists.

However, the latest political shift doesn’t necessarily mean trouble for the company. In fact, Lynas had five years to advertise LAMP’s modern safety and environmental practices, and now employs more than 600 locals.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. 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 Scott Phillips.

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