The Lynas Rare Earths Ltd (ASX: LYC) share price has been a top 10 performer of the S&P/ASX 200 Index (ASX: XJO) over the past 12 months. However, with the new year drawing closer investors are eyeing off what performance might look like for the year ahead.
Despite the rare earths mining company anticipating significant demand growth for the magnetic commodity, analysts are divided over the upside potential for the Lynas share price in the coming year.
Where could the Lynas share price be heading?
Let's first take a look at the buy-side for the Lynas share price. At the beginning of the month Barrenjoey mining equity analyst, Daniel Morgan initiated coverage on the rare earth mining company.
According to the note, the Sydney-based broker has given the company an 'overweight' rating. Simultaneously, the broker labelled the Lynas share price with a target of $10.50.
However, not all analysts share in Morgan's positive sentiment for the commodity-driven business. Instead, David Franklyn of Argonaut and Tim Serjeant of Eley Griffiths have stuck with a 'hold' rating. In an interview with Livewire in November, the fund managers were more reserved towards the Lynas share price due to its valuation.
Both agreed that the company's Mount Weld mine is a strategic asset considering its position outside of China. However, neither Franklyn nor Serjeant could get past the fundamentals. At present, the company trades on a price-to-earnings (P/E) ratio of approximately 50 times.
In addition, Serjeant believes pricing is now towards the upper end for neodymium-praseodymium (NdPr), at around $100 per kilogram. From here, the fund manager sees little volume growth in the near term as ASX-listed Lynas goes through a capital heavy period.
This capital intensity being referred to is likely with regards to the development of the rare earths processing facility in Kalgoorlie. The project has been pencilled out to involve $500 million of investment before becoming operational in July 2023.
For those reasons, Franklyn and Serjeant are sticking with a hold rating.
