Here’s why the Lynas (ASX:LYC) share price is up 3% on Monday

Lynas shares are rising on continued support by JARE.

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The Lynas Rare Earths Ltd (ASX: LYC) share price is currently up around 3% after the rare earth miner reconfirmed long-term support from a key stakeholder.

Lynas share price rises as letter signed

Lynas has signed a letter of agreement with Japan Australia Rare Earths (JARE), reconfirming JARE’s long-term support for the Lynas business.

What is JARE?

Lynas explained that JARE is a special purpose company established by Japan Oil, Gas and Metals National Corporation and Sojitz Corporation. Lynas and JARE are parties to a long-term senior loan facility, with a principal balance of US$145 million, an interest rate of 2.5% per annum and a maturity date of 30 June 2030. The company announced this loan facility in June 2019.

As agreed, Lynas and JARE continue to work together on the development of the Lynas business.

Further delay of interest payment

Lynas had previously announced that in support of Lynas’ capital expenditure on Lynas 2025 growth projects, JARE deferred interest of US$11.5 million until 31 October 2021, with no penalty and no additional interest. JARE has agreed to further defer the repayment of this interest until 31 March 2021, with no penalty and additional interest.

Quarterly update

It was just over a week ago that Lynas told investors how the first quarter of its 2022 financial year had gone compared to the fourth quarter of FY21.

Lynas said that its quarterly sales revenue was $121.6 million (down from $185.9 million in the FY21 fourth quarter) and the sales receipts were $92 million (down from $192 million).

Looking at the production, total rare earth oxide (REO) production was 3,166 tonnes (down from 3,778 tonnes), whilst neodymium and praseodymium (NdPr) production was 1,255 tonnes (a reduction from 1,393 tonnes.

However, Lynas noted that the rising COVID-19 cases in Malaysia meant that cracking and leaching plant was partially or fully shutdown for 11 days due to the unavailability of personnel who were required to isolate. Product finishing of non-NdPr products was also shutdown for 16 days during the period as it prioritised NdPr production with available personnel. The pandemic continued to affect logistics with delays in both inbound and outbound shipments affecting availability of key production inputs and finished product deliveries.

Despite those challenges, the team managed to maintain NdPr production at 70% of Lynas NEXT capacity.

The rare earth miner pointed out that demand for rare earth materials continues to be very strong in the magnet market and customers say that they expect this demand to further accelerate in 2022. The average China domestic price for NdPr was US$80.1 per kilo for the quarter.

Projects on track

Lynas also noted that work has continued with procurement and minor and preliminary works at the Kalgoorlie rare earths processing facility (as approved by the EPA) in March 2021. Concrete works were installed on the site to enable the delivery of the kiln shell, which is being shipped from Europe and is expected to arrive in WA in November 2021.

After the quarter finished, the WA EPA recommended the Kalgoorlie facility for environmental approval subject to conditions and released its assessment report on 20 October 2021.

Rating on the Lynas share price

The broker Ord Minnett currently rates Lynas as a sell with a price target of $4.30, which is approximately 40% lower than today’s price. Whilst Lynas is doing well in the current environment, the broker thinks the Lynas share price is valued too highly.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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