The Lynas Corporation Ltd (ASX: LYC) share price swung widely today after the miner provided an update on their Malaysian operations.
The Lynas share price jumped over 3% in early trade before giving up gains to trade 0.8% lower at $2.44. Shares in the rare earth miner was dragged down by deepening losses on the S&P/ASX 200 Index (Index:^AXJO) as COVID-19 cases in Victoria spiked to a new record high.
The state recorded 725 new cases on Tuesday and that sucked confidence from the market with only defensive and gold stocks making any gains.
ASX miners golden run
But the Lynas share price should also be following gold miners higher in my opinion as the market is under appreciating its defensive qualities.
One of the key risks facing the miner is abating after management noted comments from Malaysian Minister of Science, Technology and Innovation, Khairy Jamaluddin.
Lynas risk profile improving
He said that the Atomic Energy Licensing Board (AELB) approved the proposed site at Bukit Ketam for the construction of a Permanent Deposit Facility (PDF).
The approval is subject to completion of relevant studies and final approvals by regulatory authorities.
Lynas will apply for final regulatory approval in the coming months to start construction of the facility by early 2021.
“This is a further step towards satisfying the key conditions of the three-year Lynas Malaysia operating licence that was announced on 27 February 2020,” said the miner in an ASX statement.
Strategic value not in share price
The future of Lynas’ operations in the state was under a cloud due to some community opposition as Lynas’ plant will produce low-level radioactive waste.
The PDF should help turn Water Leach Purification (WLP) residue into phosphate that can be used as fertilizer or in the construction industry.
This is a positive step forward and reinforces my view that the strategic value in Lynas is not reflected in its current share price.
Re-rating opportunity ahead
Lynas is the largest rare earths miner in the world outside of China. Rare earths are used in a wide range of critical electronics and weapons.
China is turning the minerals into a weapon in itself as it squares off against the United States and its allies.
I can see a clear re-rating opportunity for Lynas if it secures US government funding to build its JV processing plant in Texas.
The probability of this is high, regardless of who wins the November US presidential election as the country won’t want to be beholden to Chinese suppliers.
While the Lynas share price has more than doubled since the March bear market low, but it’s still lagging significantly behind other miners since the start of 2020.
I am expecting the stock to rise to $3 over the next 12-months.
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