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Lynas share price rockets higher on growth plans

The best performer on the S&P/ASX 200 index on Tuesday has been the Lynas Corporation Ltd (ASX: LYC) share price.

In afternoon trade the rare earths producer’s shares are up 15% to $2.27.

Why is the Lynas share price rocketing higher?

This morning Lynas released a presentation ahead of investor day in Sydney this morning. The theme of the day was: “Lynas 2025: Growing with the Market.”

Judging by the share price reaction, investors appear pleased with the company’s growth plans for the next six years and have been scrambling to buy shares today.

What are Lynas’ plans?

One of the company’s major plans is to move its cracking and leaching operations from Malaysia to Western Australia

Not only will this satisfy Malaysian requirements, but it is expected to help the company ramp up its production to 10.5kt of Neodymium and Praseodymium (NdPr) oxide per annum in order to meet and profit from the expected demand growth.

According to the presentation, demand for fresh NdPr oxide is forecast to accelerate materially from 2021 due to its increasing use in wind turbines, automotive, electric vehicles, automation, electronics and medical equipment.

In fact, between 2020 and 2030 demand for NdOr Oxide is expected to more than double to over 60 kt per annum.

The good news for Lynas is that demand is forecast to outstrip new supply for some time to come, which is likely to mean prices for rare earths trade at favourable levels over the long term..

And although there is interest in junior projects, the company does not expect significant production to come on line in the near future. This is due to the rare earths market being highly capital intensive and the ramp up to full production taking considerable time for producers.

In light of this positive long term outlook, it isn’t hard to see why Wesfarmers Ltd (ASX: WES) launched a (failed) takeover approach earlier this year.

But given its sizeable share price rise since the approach, it looks as though Wesfarmers has missed out on this one and will now have to settle with lithium miner Kidman Resources Ltd (ASX: KDR) for it exposure to the electric vehicle boom.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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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