Rare Earths

Lynas awarded US$120m to build US-based heavy rare earth facility

Tue 14 Jun 22, 10:11am (AEST)
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Key Points

  • The facility is expected to be located within an existing industrial area on the Gulf Coast of Texas and targeted to be operational in FY255
  • Feedstock for the facility will be a mixed Rare Earths carbonate produced from material sourced at the Lynas mine in Mt Weld, WA
  • Lynas was down -5.72% on Friday on the back of souring sentiment towards companies associated with battery technology

Following on from the losses it incurred on Friday, down -5.72% on the back of souring sentiment towards companies associated with battery technology, news that Lynas Rare Earths (ASX: LYC) has secured another major defence deal is unlikely to stop the rare earths producer opening lower along with the broader market.

The company’s subsidiary Lynas US has been awarded a follow-on US$120m contract with the US Department of Defense to establish a Heavy Rare Earths (HRE) separation facility in the US.

The contract awarded to Lynas builds on from a phase 1 deal for a Heavy Rare Earth separation facility announced in July 2020.

US-based facility

Lynas plans to co-locate the Heavy Rare Earths separation facility with the proposed Light Rare Earth separation facility which is sponsored and half funded by the US Department of Defense's Defense (DOD) Production Act office.

As a result, US industry will gain access to domestically produced Heavy Rare Earths - which cannot be sourced today - essential to the development of a robust supply chain for future facing industries including electric vehicles, wind turbines and electronics.

Up and running in FY25

Following a detailed site selection process, the facility is expected to be located within an existing industrial area on the Gulf Coast of Texas and targeted to be operational in FY25.

Management believes the DoD’s decision to fully fund the construction of the Heavy Rare Earths facility demonstrates the priority that the US Government is placing on ensuring supply chains for these critical materials are resilient and environmentally responsible.

Feedstock for the facility will be a mixed rare earths carbonate produced from material sourced at the Lynas mine in Mt Weld, WA.

Lynas will also work with potential third-party providers to source other suitable feedstocks as they become available.

Accelerated growth plan

Commenting on today’s announcement, Lynas Rare Earths CEO Amanda Lacaze believes the development of a US Heavy Rare Earths separation facility is an important part of the company’s accelerated growth plan.

“We look forward to not only meeting the rare earth needs of the US Government but also reinvigorating the local Rare Earths market. This includes working to develop the Rare Earths supply chain and value-added activities,” said Lacaze.

“The U.S. Government’s selection of Lynas for this strategic contract reflects our proven track record in Rare Earths production.”

What brokers think

Despite recent falls, the S&P/ASX100 stock is still up around 50% over 12 months.

Consensus on Lynas is Moderate Buy.

Based on Morningstar’s value of $8.93 the stock appears to be fairly valued.

Based on the two brokers that cover Lynas (as reported on by FN Arena) the stock is currently trading with 2.1% upside to an $8.75 price target.

Macquarie is impressed by the ramp-up in production and believes the company is well positioned to deliver higher volumes in FY23.

The broker retains an Outperform rating and $12.80 target price.

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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