Upgrade alert: Goldman Sachs says this ASX 200 mining share is 'undervalued'

Goldman Sachs has just become bullish on this mining share. But why?

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Lynas Rare Earths Ltd (ASX: LYC) shares are pushing higher on Wednesday.

In afternoon trade, the ASX 200 rare earths mining share is up almost 3% to $6.67.

Why is this ASX 200 mining share rising?

The catalyst for this gain appears to have been a broker note out of Goldman Sachs this morning.

According to the release, the broker has upgraded its shares to a buy rating (from neutral) with a price target of $7.40.

Based on the current Lynas share price, this implies a potential upside of approximately 11% from current levels.

Why did it upgrade its shares?

Goldman made the move on valuation grounds after factoring in the ASX 200 mining share's US refinery into its model.

It also feels that its shares are "undervalued" compared to one of its US-based peers. Goldman explains:

Undervalued after incorporating US refinery into base case model: the stock is trading at ~0.8x NAV (A$7.78/sh) and pricing in just US$68/kg NdPr vs. spot at US$71/kg and our long run US$80/kg (real $, from 2027) NdPr price forecast, and on 13.5x NTM EBITDA vs key US based peer MP Materials on 15x. LYC is trading at ~15% [now 11%] below our revised PT.

Another reason for the broker's bullish stance is the company's positive growth outlook. It adds:

LYNAS 2025 target (12ktpa NdPr) likely delivered in 2026 but could be upsized to >12ktpa NdPr (not in base case) based on the Mt Weld resource, possible third party feed, and ongoing supportive global government policy: while the current 2025 target implies doubling of production at capex of ~A$1.6bn on our estimates, the high grade Mt Weld RE deposit (54.5Mt of ore @ 5.3% TREO and a reserve of 18.3Mt of ore @8.3% TREO) could support further expansions beyond 12ktpa NdPr in our view.

Overall, the broker appears to believe it could be worth taking a look at Lynas if you're wanting rare earths exposure.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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