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.
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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.
