The embattled Lynas Corporation Ltd (ASX: LYC) share price could be at a turning point as shares in the rare earth miner surged on the back of its latest quarterly production report.
The LYC share price jumped 4.3% to $1.67 in morning trade and is the best performing miner on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) at the time of writing.
In contrast, the heavyweights of the industry like the BHP Group Ltd (ASX: BHP) share price, Rio Tinto Limited (ASX: RIO) share price and Fortescue Metals Group Limited (ASX: FMG) share price retreated despite a jump in the iron ore price.
But even with the big morning rally, Lynas' share price is still 18% in the hole over the past year even as most of our mining giants have outperformed the market.
Quarterly update
What this means is that there is more room for Lynas to re-rate and it's December quarter production update seems to be putting the stock on the right path as it eased concerns over the future of its Malaysian operations.
Its update didn't look like anything to get excited about at first blush with sales revenue for the quarter coming in at $79.9 million. That's weaker than the $93 million it posted for the same period last year and the $105.6 million it delivered in the previous quarter.
A drop in the price of Neodymium and Praseodymium (NdPr) was to blame as the average selling price fell 47% from the previous quarter to $14.50 per kilogram.
However, Lynas' ability to produce 600 tonnes of NdPr for the second consecutive month in October 2018 is giving investors confidence in the company's operations.
Not all about the numbers
Lynas also gave an update on its regulator challenge in Malaysia after the new government appointed a review committee to take a look at its plant amid criticisms that the facility posed a threat to the environment and workers' health and safety.
The committee undertook extensive visits to the plant and found that it complied with applicable laws, did not breach its operating license and posed a low risk.
But Lynas isn't out of the woods yet. The Malaysian government is imposing two new conditions on the company before it will renew the miner's operating license which expires on September 2, 2019.
Foolish takeaway
Lynas is appealing one of the conditions that requires it to export its Water Leach Purification residue before its license expires. Management confirmed its still in discussions with Malaysian authorities on this matter.
It's hard to predict the regulatory outcome and this means investing in Lynas is only suited for those with a strong stomach.
Regulatory risks aside, Lynas looks like it has a bright future as NdPr production is controlled by the Chinese government and many global users of rare earths see Lynas as one of the few viable ways to overcome China's stranglehold on the industry.
