On Thursday morning, ASX 200 mining company Lynas Rare Earths Ltd (ASX: LYC) reported an upbeat performance for the fourth quarter of FY25.
Most notably, the rare earths miner revealed record quarterly production of neodymium (Nd) and praseodymium (Pr) – collectively bundled for sale as NdPr.
In brief, these two rare earth elements play a starring role in permanent magnets utilised in electric vehicles (EVs), wind turbines, as well as consumer electronics.
As such, they are considered critical materials for the modern-day world.
In addition, Lynas delivered a 68% surge in overall rare earth oxide (REO) production from the previous quarter.
These improvements in output were amplified by a higher selling price for the company's basket of goods, which reached its highest level since mid-2022.
In turn, revenue of $170.2 million ballooned by 38% from the prior three months.
Investors appeared to like the news with the company's share price rising to $10.65 at the end of trading on Thursday – up by 5% from Wednesday's close.
All up, Lynas has now seen its share price rocket by 64% since the start of the year.
However, Australian investment house Macquarie Group Ltd (ASX: MQG) has now weighed in with its views.
And the broker has placed an underperform rating on Lynas in a research report released on Friday.
Production improvements
Analysts at Macquarie turned the spotlight on the significant production boost unveiled by the company.
The miner produced 3,212 tonnes of REO during the fourth quarter – 19% higher than estimate consensus.
Meanwhile, NdPr output of 2,080 tonnes was 17% above market expectations and 5% higher than Macquarie's own forecast.
The broker also noted how Lynas continues to produce a higher proportion of NdPr (65% in the fourth quarter), which is helping to improve margins.
Macquarie sees this as a welcome development for Lynas.
It said:
Historically, NdPr volume represented ~35-40% of LYC's total REO output. In the past five quarters, the miner adjusted its NdPr content which was lifted to 65% on average. We believe this approach not only produces a more high value NdPr product but could assist to lower its refining cost.
In turn, the broker increased Lynas' longer term NdPr production forecast from 35% to 60%.
Running too hard
Macquarie also remains bullish on rare earths prices in the coming months, anticipating a tightening market in the second half of the year.
It projects the NdPr price to surpass US$75 per kilogram throughout the remainder of 2025, and to rise to more than US$90 per kilogram next year.
However, the broker considers Lynas to be trading at a valuation that implies NdPr prices of about US$100 per kilogram – or about 50% higher than current levels.
In other words, it believes the company to be fully valued.
As a result, Macquarie set a 12-month target price for Lynas of $9 per share.
This suggests potential downside of 16% from Friday's closing price of $10.73.
