The Lynas Rare Earths Ltd (ASX: LYC) share price has opened 3.57% lower this morning after the mining giant reported a jaw-dropping 944% increase in net profits.
At the time of writing, Lynas shares are swapping hands for $5.44. Yesterday, the Lynas share price closed 1.39% lower to end the day at $5.66.
What did Lynas report?
The Malaysian/Australian mining corporation announced a net profit after tax of $46.1 million for the six months ending 31 December 2020. In the previous corresponding period (pcp) net profits were $3.9 million.
The enormous lift in profits were a result of multiple factors. Revenue was up $22 million ($202 million total) on the pcp. Expenses from normal activities went down by $1 million ($151 million total) on the pcp. This equates to a gross profit of $51.7 million – an 81% increase on the pcp.
The even greater increase in net profits was driven by a stronger Australian dollar in the period, which converted a net foreign exchange loss of $350,000 to a gain of $9.1 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) were reported at $80.6 million. This is an increase on the pcp, which was $44.2 million. Earnings per share (EPS) for the reporting period was $4.87 – an 870% increase on the pcp.
The rare earth mining company also reported it would pay back approximately $1 million in JobKeeper subsidies and its Malaysian equivalent.
The company stated it would not pay a dividend for the half-year period.
Company profile
Lynas is a leading rare earths producer with a portfolio of aligned assets to explore, develop, mine and process rare earth minerals. Assets include its Mt Weld mine and Mt Weld Concentration Plant in Western Australia, and a manufacturing facility in Malaysia. The company's Mt Weld resource is among the highest-grade rare earth mines in the world.
According to Geoscience Australia, rare earth minerals have a variety of applications including magnets and super magnets, motors, metal alloys, electronic equipment, batteries, catalytic converters, petroleum refining, medical imaging, and more.
Words from the CEO
Lynas Rare Earths CEO and Managing Director, Amanda Lacaze, commented on the results: "This half-year demonstrated our ability to achieve strong results across all key financial metrics, while running production at 75% of Lynas NEXT rates."
Lacaze added:
Despite ongoing uncertainty in the global economy and logistics/supply chain systems due to the effect of the pandemic, Rare Earths market settings were favourable and pricing for Rare Earths materials improved. The drive and discipline of the whole Lynas team has enabled us to meet the challenges posed by the pandemic whilst delivering strong results.
Future endeavours
Lynas raised $425 million in equity during the period, which the company stated would be used to fund the "Lynas 2025 project." The project consists of a new Kalgoorlie Rare Earth Processing facility and "associated upgrades at the Lynas Malaysia plant."
The company's work with the US Defence Department (DoD) also continues. Phase 1 work on the US-based Heavy Rare Earths separation facility is due for completion at the end of FY21. At the same time, the Light Rare Earths separation plant progress will receive $60 million in funding from both the DoD and Lynas, divided equally.
Potential risks
As a part of its report, Lynas listed a variety of potential risks to operations, including:
- Political risk from the recent change of government in Malaysia
- Environmental risks resulting from a hypothetical breach of regulations on air quality, groundwater, and wildlife protection
- Changes to taxation law and mining royalties in both Australia and Malaysia, and
- Climate change risks, such as increased capital and operational costs, increased regulation on mineral extraction, reputational risk, and increasing extreme weather phenomena hampering operations.
Lynas share price snapshot
While Lynas shares are under pressure this morning, the Lynas share price has been on an upward trajectory over the past year. On 28 February 2020 shares were trading at $1.82, so the current level marks a 190% increase.
