China smartphone shipments slumped in June on inventory overhang: Jefferies
Investing.com -- Jefferies has upgraded Lynas (F:LYI) Rare Earths (ASX:LYC) to “buy” from “underperform” and raised its price target to AUD10 from AUD6.40, citing a major shift in U.S. rare earths policy that could materially benefit non-Chinese producers.
The decision follows the U.S. Department of Defense’s (DoD) 10-year supply agreement with MP Materials, establishing a floor price of US$110/kg for NdPr oxide, nearly double the current Chinese spot price.
Jefferies views this intervention as a structural reset of Western rare earth pricing, with Lynas positioned as the next likely beneficiary.
Lynas, the only significant producer of separated rare earths outside China, operates facilities in Malaysia and Australia and is developing the Seadrift processing plant in Texas, backed by a A$120 million U.S. grant.
While capital costs at Seadrift have increased to A$575 million from a previously estimated A$400 million, Jefferies flagged the potential for further government support in light of new pricing guarantees.
The U.S. move to establish an independent rare earth magnet supply chain, including direct DoD offtake and strategic stockpiling, is expected to spur broader supply chain investment.
Analysts said Lynas could benefit through improved offtake visibility, co-investment potential, and inclusion in future U.S. and EU strategic programs.
Financially, Lynas is projected to recover strongly after a weak FY2025. Revenue is forecast to rise from A$523.7 million in FY2025 to A$823.2 million in FY2026 and A$1.27 billion in FY2027.
EBITDA is expected to climb from A$81.3 million in FY2025 to A$389.3 million in FY2026 and A$649.9 million in FY2027.
Earnings per share are set to increase from 2.85¢ in FY2025 to 26.90¢ in FY2026 and 46.22¢ in FY2027.
The revised outlook also reflects higher long-term price expectations for NdPr oxide and the ramp-up of Lynas’s expanded processing facilities.
The Kalgoorlie plant and the Malaysian separation facility are expected to support higher production volumes. Total (EPA:TTEF) rare earths sales are forecast at 10,767 tonnes in FY2025, rising to 16,911 tonnes in FY2027.
Jefferies said operating costs are expected to decline over time, with TREO costs estimated at A$35.66/kg in FY2025, falling to A$32.19/kg by FY2027.
Capital expenditure is set to decrease from A$386.7 million in FY2025 to A$95.5 million in FY2026 and A$112.6 million in FY2027, following the peak construction phase.
While Lynas management has previously warned that strategic stockpiles could distort market pricing, Jefferies believes the benefits from stable offtake and funding outweigh the risks.