Shares in Lynas Rare Earths (ASX: LYC) were down around 4% at the open after the rare earths miner posted a steeper-than-expected drop in its first-half profit which tumbled 85%.
While revenue in the WA company - the biggest non-Chinese rare earth producer - was up 8% to $254.3 million due to a spike in two rare earth elements - neodymium and praesodymium (NdPr) - sales volumes, net profit fell sharply to $5.9 million from $39.5 million in the previous period.
Despite a 23% and 22% increase in NdPr sales and production volumes respectively, Lynas CEO Amanda Lacaze attributed much of today's result to a drop in the average China domestic price of NdPr (VAT excluded) from US$56/kg in December 2023 to US$49/kg in December 2024 and higher sales costs.
Lacaze also noted that higher production costs involved in the company's expanded operations in Kalgoorlie and Malaysia also placed additional pressure on margins and overall profitability.
On a more pleasing note, the company reported a "strong uplift" in its Mt Weld mineral resource and ore reserves, with this site now supporting the 20-plus year mine life target at 12,000tpa NdPr finished product capacity.
Other key numbers announced today include:
- Pre-tax income of $38.1 million, down from $62.6 million this time last year.
- Cost of sales increased by 29% to $205.3 million.
- Cash burn of $378 million.
- Cash balance of $308.3 million.
- No dividends to be paid.
Last November the company opened its $800 million processing plant near Kalgoorlie, while the company's operations in Malaysia produce separated rare earth materials for export to Asia, Europe and the U.S.
While the rare earths market remains exposed to complex headwinds, Lacaze reminded the market that they are short term issues that will eventually pass.
Improving market conditions
Key factors Lacaze expects to support improved market conditions include continued demand growth in key sectors, proposed changes to the regulatory environment in China, and sustained support for supply chain development from relevant governments.
"We see the current challenges as short-term issues and our team has the skills and competence to manage these and deliver stronger results in the future," said Lacaze.
“We remain focused on growing to meet customer demand, maximising efficiencies and delivering excellent value.”
The company is also contending with a rise in rare earth production quotas in China. This accounts for 70% of all global rare earth extraction and 87% of all processing.
With market conditions remaining unpredictable, Jefferies’ analysts believe Lynas’ success will depend on its continued ability to balance growth ambitions with disciplined financial management.
Lynas Rare Earths has a market cap of $6.2 billion, making it an ASX100 stock; the share price is up 18% in one year and 4% year to date.
The stock's shares appear to be in a near-term downtrend confirmed by its 20-day moving average.
Consensus is Hold.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
