Lynas Rare Earths Ltd (ASX: LYC) shares could be in the bargain bin.
That's the view of analysts at Goldman Sachs, which believe the ASX 200 mining stock is undervalued at current levels.
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What is Goldman saying about this ASX 200 mining stock?
Goldman has been looking at the rare earths market and has updated its supply/demand model to reflect Chinese production quotas and the latest electric vehicle (EV) and wind demand.
While this has resulted in the broker reducing its rare earths price forecasts and Lynas' earnings estimates, it still remains very positive.
This is largely because it believes there will be deficits coming in the medium term. It explains:
Our view of long run deficits and ex-China refining, metal and magnet bottlenecks underpins our unchanged long run NdPr price of ~US$83/kg (real $, from 2028), which we believe is the minimum price required to incentivize new refinery developments and expansions based on our economic assessments of the higher quality global rare earth deposits.
In light of this, the broker has retained its conviction buy rating on the ASX 200 mining stock with a trimmed price target of $7.20. This implies potential upside of approximately 25% for investors from current levels.
'Undervalued'
Commenting on Lynas' shares, the broker said:
Undervalued: the stock is trading at ~0.75x NAV (A$7.65/sh) and pricing in ~US$65/kg NdPr vs. spot at ~US$55/kg and our long run US$83/kg (real $, from 2028) NdPr price forecast.
The broker also highlights its strong production growth potential as a reason to buy. It said:
NdPr ramp-up is underway with production to more than double from ~3.6ktpa in the Dec Q to ~9ktpa by end of CY24. While the current 2025 target implies more than doubling of production (from FY24 levels) to ~12ktpa at capex of ~A$1.8bn 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 with resource upside) could support further expansions beyond 12ktpa NdPr in our view.
