Has Lynas’ Record Result Put Rare Earths Back on the Agenda?
In today’s Money Morning…the best may be yet to come…Europe follows the US’s lead to secure vital materials…the good news for Aussie rare earth miners…and more…
While browsing this morning’s ASX updates, one name caught my eye…
Lynas Rare Earths Ltd [ASX:LYC] is the biggest rare earths miner in Australia. And if you’ve been a long-time reader of Money Morning, then you’ll know that rare earths have been a topic we’ve covered extensively in the past.
This is largely due to the very concentrated market surrounding these minerals. China still dominates global processing, production, and supply of rare earths.
A fact that has become increasingly worrisome for the West as trade tensions escalate.
But Lynas is one of the few companies looking to provide an alternate supply option. And looking at their FY21 results (released today), business appears to be booming for the company.
Here’s a glimpse of some of the standout figures:
- Net profit of $157.1 million — compared to a $19.4 million loss this time last year
- $489 million in revenue — compared to $305.1 million last year
- EBITDA of $235.3 million — nearly quadrupling last year’s $59.7 million result
Suffice to say, it’s been a good 12 months for Lynas. A fact that is evidently reflected in the 174% increase of their share price over the past year.
So, did you miss the rare earths boom, or is this just the appetiser?
The best may be yet to come
Aside from the great growth Lynas has achieved, I think the real standout has to be their plans for even bigger ambitions.
You may have heard about Lynas’ agreement with the US Department of Defence for instance. A deal that was struck earlier this year, in January.
The gist of this partnership is that Lynas will help build a rare earths processing plant in the US. Giving the US government a reliable, domestic supply of these key minerals.
Here’s the thing though, none of that is attributable to their bumper result this past financial year. Because this project is still a part of their ‘2025 growth plan’. Meaning, what may be the most important deal in Lynas’ history to date, isn’t even in effect yet.
We can only imagine and speculate as to how impactful this 2025 plan will be on future earnings. Something that, to me at least, suggests the real rare earths boom is yet to come.
Factor in the expectation that demand for electric cars, wind turbines, and other products that rely heavily on rare earth materials, and you can see how this could become a reality. A scenario that bodes well for not only Lynas, but a whole host of up-and-coming rare earth miners.
Iluka Resources Ltd [ASX:ILU] is another relatively big miner worth keeping an eye on, for instance. Because while their core focus is mineral sand, they have started to dabble in rare earths.
Management is currently in the midst of assessing the feasibility of a fully integrated refinery at their Eneabba site in WA. A facility that would be the first of its kind in Australia, if approved.
So don’t be surprised if Lynas starts having to deal with more local competition.
Not that that is a bad thing, because like I said, demand is the real key here.
Europe follows the US’s lead to secure vital materials
Just as the US has made rare earths a priority in recent years, so too has Europe.
Late last year, the EU created the new European Raw Materials Alliance (ERMA). A group whose job it is to get a hold of a range of critical minerals, with top priority given to rare earths.
But as of this week, reports are suggesting the EU is now looking at securing downstream supply as well. Working on proposals that would allow European producers of rare earth magnets to compete with heavily subsidised Chinese products.
As CNBC reports:
‘European firms say they cannot compete with Chinese producers, which they say get subsidies worth about a fifth of their raw materials costs, helping them to supply 90% of the global market for the magnets.’
In order to combat this, the EU is apparently considering financing and compensation alternatives. Giving these magnet manufacturers a means to deal with the higher raw material costs.
And if the EU’s spending on battery ‘gigafactories’ is any indicator — which was promised $65 billion in investment capital — then Europe is certainly willing to spend big. Throwing money at a problem in order to try and future-proof their needs.
As such, don’t be surprised if demand for rare earths explodes in line with these developments. Because while China is still a major supplier of both the raw materials and processed product, that seems likely to change. Especially once the US and Europe’s downstream facilities come online.
All of which is great news for Aussie rare earth miners.
Because when the boom in demand begins, their time will come once more.
As an investor, that is just something to keep in mind over the coming months and years. Because if you thought the rare earths trend had disappeared, you may be dead wrong.
This boom looks as though it is just getting started.
Editor, Money Morning
PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.