The Lynas Rare Earths Ltd (ASX: LYC) share price has been sold off by around 11% in recent weeks.
Still, this isn’t too bad considering Lynas’s shares have returned over 350% since March last year.
LYC share price
Lynas Background
Lynas is one of only two companies in the world that’s involved in rare earth processing outside of China. Its deposit is located in Mt Weld, Western Australia, where its products are eventually used in things such as electronics, catalytic converters, and electric vehicles (EVs).
Lynas’ raw materials are shipped to its processing facility in Malaysia to be separated into high-quality rare earth materials.
Malaysian plant continues despite pandemic
Lynas’ shares dipped on Tuesday when it provided the market with an update on how COVID-19 is affecting the operations of its Malaysian plant.
The Malaysian government’s movement control order (MCO), which is in effect until 7 June 2021, has been introduced to curb the spread of the COVID-19. However, it will permit all economic sectors to continue operating during the period.
So, despite Malaysia going into its third lockdown due to the virus, it seems that it’s business as usual for Lynas’ processing plant within the country.
While investors were reassured, it seems the market didn’t like the uncertainty around the situation, which could partly explain why shares have been volatile recently.
Recent developments
Earlier in the year, Lynas told the market that it had signed an agreement to build a rare earths separation plant based in the US state of Texas.
Tensions between the US and China was the major catalyst behind the agreement, as there were worries over Beijing potentially restricting supply.
Rare earths are a key ingredient in military equipment and electronics, so the rationale appears to make a lot of sense. It’s estimated that the new plant will produce around 5,000 tonnes of minerals per year.
Time to buy Lynas’s shares?
Lynas’s seems to have some quality assets and it’s in a competitive position due to it being the largest rare earths producer outside of China.
If the broader thematic of rare earths continues to be positive, Lynas may stand to benefit significantly.
Like any commodity producer, the company’s share price is fairly leveraged to the underlying price at which it can sell its products for. Without a firm belief in the long-term outlook for rare earths, I find it hard to make an investment case for Lynas’ shares today.
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