Rare earths miner Lynas Corporation Limited [ASX:LYC] saw an impressive spike in their share price yesterday. The price was up around 8% following the news that their operating licence in Malaysia would be extended.
Earlier this morning however, Lynas issued a pause in trading pending an announcement. This announcement ended up being a comment from the company on the ‘recent media coverage’ of the Malaysia agreement, urging shareholders to ‘not rely on media speculation’.
After that, shares resumed normal trading and have managed to rise another 2.56% at time of writing, sitting at $2.81 apiece.
So with more muted gains, it seems investors have in fact listened, but are still positive about the future of the second largest rare earths producer in the world.
But what speculation were they referring to?
Lynas on the cusp of licence renewal
According to The Australian Financial Review, the licence extension may be shorter than three years. The dispute over the removal of radioactive waste from the processing plant was a core issue that was holding up the licensing, but has since been resolved.
Parliament member Fuziah Salleh insists ‘Lynas should not be allowed to operate and continue to generate radioactive waste that will have long-term negative effects’.
But even with this resistance, it does look like Lynas will get the green light to continue their Malaysia operations.
And with the company recently receiving a Gold EcoVadis CSR Rating, they can lay claim to being ‘an environmentally-responsible supplier of Rare Earths’.
But Malaysian regulatory developments aside, Lynas’ fate also hinges on China.
China’s role in Lynas share price + a look at the rare earths sector ETF
With news that China has been labelled a ‘currency manipulator’ by the US, sinking the ASX yesterday, there could be further upside to the rare earths sector to come. This, in a market that is looking to be in an increasingly perilous position.
Assuming the trade war accelerates, of course.
We note that the Van Eck Rare Earth/Strategic Metals ETF [REMX] is stuck in a rut:
Here’s the thing to note about REMX though: 28% of its net assets are Chinese.
So it’s positioned to reap the benefits of a potential shift in supply chain (with the remaining percent outside of China), but also weighted in such a way that it may not capture upside unique to the features of particular rare earth companies.
Return of rare earth boom?
Lynas are currently the biggest producer of rare earths operating outside of China. The company is an important counterweight to China’s rare earths dominance.
With the ongoing US-China trade war being turned up a few notches this week and Lynas stockpiling production, this could mean a big opportunity down the track for Lynas.
If you want to gain a better understanding of rare earths, or are looking for a package of information detailing supply dynamics and strategic considerations, make sure to download this free report. It provides a concise yet in-depth look at the sector, outlining both risks and potential rewards, should rare-earths return to their 2011 form.
For Money Morning