Diggers and Dealers: Booming rare earths market could more than double in size by 2030, Lynas says

Lynas Rare Earths chases doubling of rare earths market by promising a $500 million expansion of the Mt Weld mine near Laverton
Boss Amanda Lacaze says investors overwhelming want the company to grow production as its main priority
Lynas is the only scale producer of rare earths outside of China, but Lacaze welcomes competition from emerging local players

Lynas Rare Earths (ASX:LYC) has been the flagship rare earths stock on the ASX for over a decade, garnering mainstream focus as a sole western competitor in a critical minerals supply chain almost solely dominated by China.

While the $8.6 billion company is expected to deliver a record profit this financial year, it is chasing growth over returns to shareholders to keep pace with a rapidly expanding market for rare earths, MD Amanda Lacaze said on the sidelines of Diggers and Dealers.

Lynas expects the market for rare earths magnets to grow from 130,000t in 2020 265,000t in 2030 due to the rapid growth of electric vehicle and wind energy.

Stamping home its intention to keep pace, the company used its Diggers presentation today to announce a $500 million investment in the Mt Weld mine near Laverton.

That will push its production profile beyond a previous 2025 target of growing its NdPr production 50% to 10,500tpa to 12,000tpa by 2024.

Two additional stages at Mt Weld could deliver a pathway to an additional 2400t of NdPr equivalent.

With $1 billion committed to employing over 500 people on the mine expansion and nearby Kalgoorlie cracking and leaching plant, Lynas has a lot of capex on its plate.

But a 7.3% surge in its share price today shows investors are backing Lynas’ decision to pursue aggressive growth to the hilt.

“When my board just recently asked me for a detailed Capital Management Plan, I think that (growth v dividends) was their intention in asking for it,” Lacaze said.

“Every time there is a challenge and we talked to our large investors about should we be investing for growth or should we be returning capital to investors?

“And the direction from our investors has been exclusively, ‘you’re in a growth market, reinvest for growth.’

“They see the benefit of that in the capital growth of the stock and those sorts of things but there will be become a time when that equation changes. But today, every large investor that we have says put your money into growing the business.”

… And a growth market it is

While Lynas’ own estimates foresee a doubling of demand for NdFeB magnets, independent analysts are in many cases far more bullish.

“So our best estimate is based upon what our customers tell us, and then triangulating that with some of the information on demand is that we will see a doubling of demand between now and 2030,” Lacaze said.

“There are some external agencies that have numbers in the range of three to five times current demand. It (has) hit its inflection point sooner than we thought and any marketer will tell you that every product lifecycle has an inflection point, generally it’s only visible in the rear vision mirror.

“And so that’s our point about in 2019, we thought a 50% increase in capacity by 2025 would be sufficient.

“It isn’t, which is why we’re seeking to grow faster and to grow more.”

Competition breeds success

For the first time Lynas could be seeing some competition as a scale producer of rare earths outside of China, which controls over 80% of the market.

Iluka Resources (ASX:ILU) has federal government backing for a nation first $1.2 billion rare earths refinery at Eneabba in WA.

And juniors reporting results for forms of rare earths not previously mined in Australia like clay rare earths are seeing crazy investor interest for new early stage discoveries.

The latest is Indiana Resources (ASX:IDA), which surged yesterday on a big clay rare earths hit at its Central Gawler project in South Australia.

Lacaze said it was a more difficult process to get a rare earths operation up and running than many investors realised.

Lynas is a complex business which owns not just the Mt Weld mine, but also a downstream processing facility in Malaysia that has faced years of technical and regulatory challenges, and is now building two more processing plants in WA and the USA, the latter funded by the Pentagon after months and years of discussions with the US Department of Defence.

But she welcomed the development of new mines and companies in Australia, saying more competition would increase the pace of the industry’s growth.

“I hope so because I’m firmly into the view that competitive markets are healthier than monopoly markets. It would be pretty rich of me to say, well, it’s a problem if we have sole supply in China but actually, I just like to keep it all to myself here in Australia,” Lacaze said.

“So when I talk to our people about it and they ask me the same question, they say, well what about these potential competitors.

“We need to see it as an opportunity for us to prove how good we are to continue to innovate, to stay ahead of the game and that is the thing about competitive markets, is you get more innovation, you get more growth, the markets grow faster, when there are more players.

“I would like to see (it). Australia is at the head of the pack in terms of our mineral endowment. As a country and as an industry finding ways to really develop and get full benefit from that mineral endowment I think is exciting and I’d like to see it.”