Macquarie backs Lynas as China's export squeeze tightens the rare earths market
Macquarie upgrades Lynas to Outperform on China's export squeeze, even as Malaysia knocks back the LAMP expansion.
Source: lynas rare earths on cell phone and computer screen 1280 x 720
Mentioned
KEY POINTS
- Macquarie lifted Lynas to Outperform with a $22.00 target, on a bet that China's new export controls delay the Western rare earths projects trying to compete with it
- The upgrade is a re-rating, not an earnings change, with the broker lifting its target multiple from 12 to 15 times EV/EBITDA rather than its production forecasts
- Malaysia knocked back the LAMP expansion approval the same week, but Macquarie sees no hit to production for three to four years because existing quota already covers its base case
Macquarie is back to being bullish on Lynas Rare Earths (LYC), upgrading the stock to Outperform from Neutral on a bet that Beijing's latest export controls will choke off the supply chains its Western rivals are trying to build.
The investment bank raised its 12-month price target by 10% to $22.00.
China's new export controls
China's Ministry of Commerce added 10 US industrial and defence-linked entities to its export control list, including MP Materials and USA Rare Earth.
MP Materials runs the Mountain Pass mine in California, where it already produces separated rare earths and NdFeB (neodymium-iron-boron) magnets, and is scaling toward a 10ktpa magnet facility around 2028.
USA Rare Earth is a pre-production developer at the Round Top project in Texas, still at pilot and demo stage, targeting commercial NdFeB magnet output around 2028.
Effective immediately, China's designation blocks these US companies, and any third party supplying them, from accessing items that can be used for both commercial and military purposes. The curbs are mostly symbolic, as both companies say they have largely cut off supplies of equipment and materials from China. China accounts for around 60% of global mined rare earths, above 90% of refining and nearly 95% of permanent magnet production, which underscores its leverage.
Macquarie reckons the delay tightens the market and hands Lynas a premium as the largest separated rare earths producer outside China.
Target changes
Macquarie did not lift its earnings and production assumptions for Lynas. The analysts simply raised its valuation multiple from 12x to 15x, arguing the export-control news justifies a higher number.
The earnings ramp over the next few years is expected to be parabolic, with revenue rising from $557 million in FY25 to $2.46 billion by FY29. Over the same period, net profit is forecast to soar from $23 million to $1.32 billion, as NdPr production climbs from 6,600 tonnes to 10,300 tonnes and the NdPr price recovers toward US$117/kg.
Malaysia setback
The upgrade lands in the same week as a regulatory setback, where Malaysia's Department of Environment marked the environmental impact assessment for the Lynas Advanced Materials Plant expansion as "not approved" on its website. No public reason was given.
Macquarie's views this as a setback, not an outright rejection. The analysts expect Lynas to re-engage the government with an updated plan and does not expect any hit to production over the next three to four years.
Iluka and Meteoric also preferred
Lynas is not the only name Macquarie likes here. The broker also flags Iluka Resources and Meteoric Resources, both rated Outperform.
The case for each rests on a near-term catalyst:
Iluka Resources (ILU) sits on an Outperform rating and $8.40 target. The draw is a possible inflection in mineral sands and a rare earths offtake update (which landed today). This transition will see revenue fall from ~$1.1 billion in 2023-24 to a trough of ~$920 million in 2026, which will aggressive increase to a forecast $2.3 billion by 2029 as the rare earths refinery revenue arrives.
Meteoric Resources is the high-risk, high-reward name, carried at a $0.45 target price. That number reflects a development-stage project (Caldeira in Brazil) that Macquarie does not have generating revenue until 2028. The near-term catalyst is renewed offtake talk off the back of pilot plant operations.
What could break the thesis
The Lynas bull case leans on China keeping the screws on, and Lynas executing. Macquarie names three downside risks worth holding in mind.
Kalgoorlie still has to prove it can run at higher rates given power reliability and sulphuric acid cost pressures.
Malaysian regulatory risk has not gone away, with the LAMP expansion approval, residue obligations and licence compliance all live.
Lynas is changing CEOs while delivering Mt Weld, Kalgoorlie and its downstream heavy rare earths push at the same time.
There is also the matter of where rare earth prices go. The valuation rests on NdPr recovering from the US$50s/kg seen in FY25 toward US$120/kg by FY27. The G7 has floated the idea of a rare earth price floor to support Western supply, but those talks are early and nothing has been agreed.
