Lynas Rare Earths Ltd (ASX: LYC) 

Lynas Rare Earths Limited (ASX: LYC) is an Australian publicly listed company headquartered in Perth, Western Australia, specializing in the exploration, development, mining, and processing of rare earth minerals. Lynas operates one of the world's highest-grade rare-earth mines at Mt Weld in Western Australia.

Recommendation Rationale – SELL at AUD 20.400

• Trading Around Resistance: LYC experienced a substantial gain of approximately 148.48% since our last coverage on 4 June 2025. Currently, the 14-day Relative Strength Index (RSI) stands around 68.68, signalling that the stock is approaching the overbought territory. Given this strong price performance combined with technical indicators pointing to potential short-term weakness, it would be prudent to consider selling and reducing exposure to mitigate risks amid prevailing market uncertainties at these elevated levels.
• Company-Level Weaknesses: Despite record production and revenue growth in FY25, Lynas’ net profit declined sharply (~90%) due to rising costs, increased depreciation from expansion projects, and suboptimal production ramp-up at its Kalgoorlie processing facility. Large capital expenditures on new projects like the Mt Weld mine expansion, Kalgoorlie upgrades, and the Texas processing facility increase debt levels and depreciation charges, putting pressure on near-term profitability. In addition, the political and regulatory environment in Malaysia, where Lynas operates a key processing plant, remains uncertain given past community opposition and potential license renewal risks, representing a geopolitical risk. Also, dependency on ongoing US government support for the Texas project adds an execution risk, with the project’s future uncertain without sustained subsidy or offtake deals.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow) are higher than average of the Basic Materials’ sector.
• Lower Profitability Margins: In FY25, LYC reported a gross margin of 23.3% and a net margin of just 1.4%, significantly below the industry median of 46.5% gross margin and 10.6% net margin. This considerable underperformance highlights operational and cost pressures impacting profitability relative to its industry peers, underscoring challenges in managing expenses and achieving sustainable earnings growth.
• Industry-Level Challenges: Continued dominance of China in rare earth mining and processing poses a structural risk to Lynas. China’s ability to flood the market with lower-cost rare earths could pressure prices and margins for Lynas despite geopolitical tailwinds favoring supply diversification. The rare earth industry remains exposed to geopolitical tensions, particularly US-China trade conflicts, which can create unpredictability in supply chain dynamics and demand. China’s recent tightening of rare earth export controls raises uncertainty for global supply chains, increasing risk for Lynas customers and potentially disrupting demand patterns. Broader commodity cyclicality and the global economic slowdown risks softening demand for rare earths used in electric vehicles, renewable energy, and tech applications, which underpin Lynas’ growth thesis.

Daily Price Chart

 (Source: REFINITIV; Analysis by Kalkine Group)

Given its current trading levels, recent rally in the share price, and risks associated, it is prudent to sell the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the closing market price of AUD 20.400, as of 16 October 2025.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 16 October 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Kalkine reports are prepared based on the stock prices captured either from REFINITIV or Trading View. Typically, REFINITIV or Trading View may reflect stock prices with a delay which could be a lag of 25-30 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.