The Lynas Rare Earths Ltd (ASX: LYC) share price is down 33% over the past 12 months. But, the ASX mining share could be one stock that delivers a rebound, according to an expert.
As the name suggests, this company is involved in mining what's called 'rare earths'. It's the only major rare earth miner outside of China. Lynas points out rare earths are "essential inputs to high growth global manufacturing supply chains, including digital age technologies and green technologies such as electric vehicles and wind turbines."
What's gone wrong?
The second quarter of FY24 showed, financially, why investors aren't as excited as a year ago. FY24 second quarter sales revenue was A$112.5 million, down from A$232.7 million in the FY23 second quarter, and down from A$128.1 million in the first quarter of FY24.
Its closing cash and short-term deposit are down to around $686.1 million at the end of December 2023, down from around $900 million three months before and a year before.
The average selling price for its production in the FY24 second quarter was A$28.7 per kilo, down from A$58.4 per kilo in the FY23 second quarter.
Is the Lynas share price an opportunity?
The broker UBS seems to be quite excited about the opportunity presented by the rare earth miner.
UBS has a price target of $9.20 on the rare earth miner, which suggests a possible rise of around 60% over the next 12 months.
The broker recently noted Lynas was issued with a variation of its Malaysian operating license, "importantly allowing it to continue cracking and leaching at its facility." UBS thinks Lynas is more likely to hit its guidance on the ramp-up of the downstream post-expansion now that cracking and leaching are not an issue.
The broker is optimistic about how much Lynas can produce in the coming years – more than Lynas' 2025 growth targets, and UBS thinks the approval can allow the business to hit its medium-term and long-term goals faster. It thinks Lynas can provide around 14kt per annum from FY27, assuming the license approval is extended again after 2026 which is when it expires.
UBS notes that Lynas is investing heavily in FY24 with the mine expansion, but it has a lot of cash to fund this.
There are three key reasons why UBS is positive about the Lynas share price. First is the miner's "market-leading" position in the rare earth space. Second, Lynas has "increasing capabilities as a processor of third-party feedstock." Third, there are "potential tailwinds from a government/funding perspective".
However, the broker is "hearing mixed signals" about the price outlook for the commodity. It's expecting NdPr demand growth of 25% in 2024 and slowing China NdPr quota growth, as well as consolidation of Chinese NdPr producers. But, on that final point, UBS is hearing Chinese domestic rare earth producers aren't yet showing "supply discipline that was previously anticipated (to maintain market share)."
Valuation snapshot
Since the start of 2024, the Lynas share price is down 18%.
