Why the Lynas (ASX:LYC) share price is still running hot

Lina Lim | December 7, 2020

Commodity prices have lifted across the boardwith both iron ore and copper running to 7-year highs and a strong recovery foroil prices. This has seen ASX mining shares including BHP Group Ltd(ASX: BHP), RioTinto Limited(ASX:RIO) and Fortescue Metals Group Limited(ASX: FMG) deliveringmarket leading returns.

However, the Lynas Rare Earths Ltd(ASX: LYC) share pricetriumphs over its ASX 200 mining peers after soaring more than 30% in November.The Lynas share price is now up 77% year to date and more than 7% in December.

Rareearth prices running to record highs

Rare earth elements are a group of 17 metals,with China holding about 50% of the world’s economic resource. Lynas primarilyproduces the rare earth element, neodymium-praseodymium (NdPr). NdPr priceshave soared in recent weeks to an 8-year high of CNY$635,000 (A$130,700) pertonne. The commodity dipped as low as CNY$307,000 (A$63, 200) in 2016 andbounced off a low of CNY$350,000 (A$72,050) in April 2020.

Lynas advises that a full assessment ofglobal rare earths demand will not be possible until the global COVID-19situation is more stable. However, positive news continues to support themagnet market. The European Union (EU) recently decided to accelerate thedecarbonisation of its economy, now targeting a 60% reduction in emissions by2030 instead of the 40% previously targeted.

With road transportation responsible for morethan 20% of CO2 emissions in the EU, this acceleration is expected to translateinto a faster penetration of electric and hybrid vehicles, both of whichutilise NdPr in their batteries.

Lynasto expand production and footprint

Lynas has selected Kalgoorlie as the locationfor its new rare earths processing facility. The Western Australia Governmentawarded the project ‘lead agency’ status, with a ‘major project’ status awardedby the Australian Government. The major project status formally recognises thesignificance of a project to the Australian economy with extra project supportand streamlined project state and territory approvals.

As announced on 27 July 2020, Lynas alsosigned a contract with the United States Department of Defence for Phase 1 workon a proposed US-based heavy rare earth separation facility. The asset isintended to provide an expanded product suite as well as the only source ofseparated heavy rare earths outside China. The facility will be using materialsourced from the Lynas mine in Mt Weld, Western Australia.

At the time of writing, the Lynas share pricehas increased 1.5% to $4.08 in trading today.