Lynas share price slips as costs jump 32%

Lynas is not immune to the cost pressures that many have been facing lately…

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Key points

  • The Lynas Rare Earths share price is down more than 4% to $8.13 amid its first-half results
  • Profits were down 4% compared to the same time last year as costs surged 
  • Lynas is hoping to appeal the conditions of its recently renewed operating license in Malaysia 

The Lynas Rare Earths Ltd (ASX: LYC) share price is struggling at the start of the week.

As we approach midday, shares in the rare earths miner are down 4.35% to $8.13 apiece. The negative move follows the release of the company's first-half results for FY23.

Let's check the highlights below:

Lynas share price retreats on falling earnings

It's a mixed bag from Lynas for the six months ended 31 December 2022. On the one hand, the rare earths miner was able to increase production, realise a higher average price, and deliver improved revenue compared to the prior corresponding period.

On the other hand, Lynas saw costs grow at a faster pace than the top line in the first half, crimping the company's margins. Unlike the past 18 to 24 months, profits failed to continue a rocket-like trajectory — slipping 4% year-on-year.

According to the report, the main cost drivers in the half were increases in chemical prices, utility tariff rates, employee costs, and royalty costs.

What did management say?

The reduced profitability from Lynas might be disappointing, but the result could have been worse given the challenges faced. A similar perspective was shared by CEO and managing director Amanda Lacaze:

This has been an eventful half year for Lynas with the announcement of our Mt Weld capacity expansion project and accelerated construction activity on the Kalgoorlie Facility. At the same time, in Malaysia we overcame significant water supply issues to deliver a strong production result.

In addressing the cost pressures which Lynas contended with during the half, Lacaze said:

Our team remains focused on increasing operational efficiencies to mitigate the continuing high-cost environment. At the same time, increasing production to meet strong demand from our key customers and delivering on our exciting growth projects remain key priorities.

What's next?

There are several key developments taking shape for Lynas. Arguably the most important is the appeal of conditions set under the recently renewed Lynas Malaysia operating license.

The current prohibition of importing and processing lanthanide concentrate would result in the closure of the company's cracking and leaching plant from 1 July 2023. Hence, Lynas has appealed to the Minister of The Ministry of Science, Technology, and Innovation.

At this stage, a number of possible ramp-up scenarios are being considered if the conditions are not removed.

Furthermore, progressing construction at the Kalgoorlie Rare Earths Processing Facility will be an important priority for the company. Key operational leadership personnel has now been recruited for the facility as processing is targeted for the fourth quarter of FY23.

Lynas share price under the microscope

The Lynas share price peaked in January 2022 at around $11.10 and has been on a steady decline since.

Over the past 12 months, shares in this mining company have fallen 19% in value. Whereas, other mining giants with greater exposure to iron ore and copper have been much more resilient. For instance, the BHP Group Ltd (ASX: BHP) share price is down 3.9% during the same stretch of time.

Motley Fool contributor Mitchell Lawler has positions in Lynas Rare Earths. 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 Scott Phillips.

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