Lynas Rare Earths Ltd (ASX: LYC) shares have been standout performers this year, rising 41%.
The ASX 200 mining stock is currently the only rare earth producer at scale located outside of China. Its major asset is the Mt Weld deposit, which is recognised as one of the highest grade deposits globally. Recently, the company has been negotiating deals with the US Government to secure supply.
Lynas shares have performed well over both the short and long term. Over the past five years, they are up 389%, strongly rewarding investors.
Does it have further to run?
Let's see what leading broker Macquarie Group Ltd (ASX: MQG) has to say.
In a 20 June research note, the broker downgraded the ASX 200 mining stock to underperform with a sell recommendation attached.
The broker issued this downgrade for valuation purposes, noting:
Despite our constructive production and price outlook, we note LYC's recent share price performance has exceeded our target and the underlying NdPr prices. Its A$9.30/share price has an implied NdPr price of >US$95/kg. Downgrade on the ground of valuation.
Macquarie noted that its Kalgoorlie site remains a key focus.
Rare earth concentrates produced at Mt Weld are currently shipped to Malaysia for separation into rare earth oxides. The company is currently building a processing plant in Kalgoorlie to shift production to Australia.
The broker said:
Improving MREC quality from Kalgoorlie is crucial to enhancing operational performance and demonstrating the 10.5ktpa run rate in its June quarter update, though this is not without risks in our view. Acid source changes could also increase performance variability in the near term.
What is Macquarie's price target?
The broker has set a price target of $8.00 on the ASX 200 mining stock. At the time of writing, it is trading for $9.20. This suggests a 12% downside over the next 12 months.
However, the broker notes that movements in rare earths prices, particularly NdPr prices, could impact this valuation.
What are other experts saying?
Last week, The Motley Fool's Bronwyn Allen reported a very different view on Lynas Rare Earths shares from one expert.
Michael Gable of Fairmont Equities sees plenty of tailwinds for the ASX 200 mining stock. He believes the stock will continue to outperform as the US looks to diversify its supply of these metals away from China.
On this basis, he believes Lynas Rare Earths shares can trade above $11 again. The company last traded at this price in early 2022.
