Lynas share price jumps despite 44% revenue fall

The Lynas Rare Earths Ltd (ASX: LYC) share price is climbing 5.19% in early trade this morning. This comes after the company announced its quarterly activities report for Q1 FY23 before market open.

Shares of the company are currently trading for $8.31 each. That marks a strong recovery after they slumped to $7.72 soon after open.

Let’s go over the report’s highlights.

What did Lynas Rare Earths report?

• Quarterly sales revenue down 44.38% from Q4 FY22 to $163.8 million
• Sales receipts down 33.21% to $234.4 million
• Total rare earth oxide (REO) production down 4.10% to 3,500 REOt
• Neodymium-praseodymium oxide (NdPr) production down 33.81% to 1,045 REOt

Sales of Lynas’s production were affected in September by a “catastrophic” water shortage that reduced its overall production volumes.

Furthermore, the average selling price of its REO production fell drastically in the reported period, down to $49.3/kg from $79.2/kg in the previous quarter, or a 37.75% discount.

The average selling price of its REO was impacted by Lynas fulfilling several large orders of Cerium due to its lower selling price than NdPr, and due to high volumes.

Lynas notes that overall it expects strong demand for its neodymium and praseodymium from its customers in the foreseeable future.

What else happened in Q1 FY23?

Lynas announced a $500 million capacity expansion for its Mt Weld flotation plant located in Western Australia.

This was partially funded by a US$9 million contribution from its senior lender, JARE (Japan Australia Rare Earths BV), via a subscription of ordinary shares in the company.

Meanwhile, the company continued to make progress with the construction of its Kalgoorlie Rare Earths Processing facility. An upgrade to the plant’s facilities was announced as it will incorporate an industry-first carbonate refining process, which was pre-funded by the federal government’s modern manufacturing initiative.

With this new initiative in mind, the project will cost the company roughly 15% more than the original $500 million budget estimate.

What did management say?

Lynas Rare Earths CEO Amanda Lacaze made the following comments:

We continued to face significant operational challenges including a complete outage of water supply in Malaysia. A catastrophic equipment failure experienced by the local water supplier to our Malaysian facility resulted in approximately 16 days of lost production during the quarter.

Ore mining commenced at Mt Weld during the quarter as part of Mining Campaign 4-1 and blended ores from this campaign were introduced into the process plant. Mt Weld and Kalgoorlie integration activities also commenced in the quarter and we continued to use a combination of both commercial and charter shipping to transport concentrate product to Malaysia.

Lynas continues to work with the U.S. Government on the follow-on phase for the commercial Heavy Rare Earths separation facility and the site for the combined Heavy Rare Earths and Light Rare Earths facility is in the final stages of selection.

What’s next?

The report noted that future REO pricing largely hinges on the economic recovery in China. It also notes that demand for materials has suffered from “weak demand” in the recent past.

The company will continue to roll out upgrades and expansion efforts at its Kalgoorlie and Mt Weld sites.

Lynas share price snapshot

The Lynas share price is down around 20% year to date. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down 8% over the same period.

The company’s market capitalisation is around $7.15 billion.

The post Lynas share price jumps despite 44% revenue fall appeared first on The Motley Fool Australia.

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Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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