Mt Weld And Malaysia Expansion Will Secure Rare Earth Supply

Key Takeaways

• Expanded capacity, new partnerships, and integration into non-Chinese supply chains position Lynas for increased output, pricing power, and revenue growth amid rising global demand.
  
• Completion of major projects, improved ESG credentials, and shifting geopolitical dynamics support stronger margins, stable cash flow, and enhanced long-term market positioning.
  
• Regulatory, environmental, customer concentration, and geopolitical risks threaten Lynas's production stability, profitability, and ability to diversify, despite ongoing expansion and downstream investment efforts.

Catalysts

Engages in the exploration, development, mining, extraction, and processing of rare earth minerals in Australia and Malaysia.

• The successful ramp-up and completion of new capacity at Mt Weld, alongside the start of commercial production of separated Heavy Rare Earths (Dy/Tb) in Malaysia, positions Lynas to increase output and expand product offerings, driving higher future revenues as global demand for critical materials used in EVs and renewables accelerates.
  
• Recent partnership announcements and MOUs (e.g., with JS Link in Korea and Kelantan in Malaysia) and ongoing U.S. DoD relationships support Lynas's integration into non-Chinese supply chains, likely leading to new long-term offtake contracts, improved pricing power, and reduced earnings volatility moving forward.
  
• The global push to diversify rare earth supply due to geopolitical tensions and Western government initiatives (such as tariff structures and U.S. industry investments) are accelerating outside-China demand growth, enabling Lynas to capture greater market share and sustain premium pricing, with positive impacts on both revenue and net margins.
  
• Major capital investment cycle is ending, with no significant new commitments on core facilities expected; as large projects complete and sales increase, positive free cash flow generation and improving operating leverage should drive EBITDA and net margin expansion.
  
• Lynas's growing production of heavy rare earths and proactive investments in renewables (e.g., wind and solar at Mt Weld) enhance its ESG credentials, differentiating it from lower-standard competitors and supporting access to capital and customer preference in Western markets, which should further stabilize revenues and contribute to long-term earnings growth.

Lynas Rare Earths Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lynas Rare Earths's revenue will grow by 46.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 35.5% in 3 years time.
• Analysts expect earnings to reach A$538.0 million (and earnings per share of A$0.57) by about July 2028, up from A$50.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$855 million in earnings, and the most bearish expecting A$362.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.3x on those 2028 earnings, down from 197.7x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 12.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.03%, as per the Simply Wall St company report.

Lynas Rare Earths Future Earnings Per Share Growth

Risks

• Lynas's expansion plans rely heavily on ramping up processing capacities in Malaysia and Australia, but persistent regulatory and environmental risks in Malaysia-including licensing uncertainty and waste management challenges-could disrupt production, limit output, and negatively affect revenue and margins over time.
  
• Capital intensity remains high, with significant recent investments into Mt Weld, Kalgoorlie, and planned U.S. projects; while management asserts major buildouts are complete, potential further cash requirements or trailing capital payments could pressure free cash flow, risk shareholder dilution, or increase debt, impacting net earnings growth.
  
• The company's dependence on a concentrated set of customers-primarily Japanese magnet manufacturers, with slow progress in diversifying into Europe, Korea, and the U.S.-exposes Lynas to counterparty risk and potential revenue volatility if demand weakens or buyers shift to alternative suppliers or substitute materials.
  
• Although Lynas is investing in downstream partnerships to capture higher-margin segments, execution risk remains significant, as the company lacks in-house expertise in magnet manufacturing and relies on partnerships, which could be delayed, fail to deliver expected returns, or be outpaced by more vertically integrated competitors, impacting long-term profitability.
  
• Ongoing uncertainty about Chinese export policies, potential rare earth oversupply, advancements in rare earth recycling, or accelerated development of substitute materials could undermine global pricing power, compressing Lynas's margins and reducing revenue sustainability despite recent price strength.

Valuation

• The analysts have a consensus price target of A$9.986 for Lynas Rare Earths based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$13.25, and the most bearish reporting a price target of just A$5.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.5 billion, earnings will come to A$538.0 million, and it would be trading on a PE ratio of 21.3x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of A$10.74, the analyst price target of A$9.99 is 7.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.