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Explosive Growth for Rare Earth Miners: Lynas and Iluka Resources
Rare earth miners Lynas Corporation and Iluka Resources have seen remarkable stock price surges this week, each climbing 9-10% from Monday to Tuesday. This increase follows speculation that Australia may soon implement a pricing floor for rare earths, mirroring a recent agreement made by the United States. Since early July, both companies have experienced stock growth of 40-50%.
Momentum in Rare Earth Stocks
The recent uplift in stock prices has been fuelled by reports suggesting that Australia is considering a price floor system akin to the historic agreement between the US Department of Defence and MP Materials. In this deal, the Pentagon secured a 10-year price guarantee of US$110/kg for neodymium-praseodymium oxide (NdPr), effective from late 2025, and included a profit-sharing model where the government retains 30% of earnings if prices surpass the guaranteed floor.
This shift signifies a new stance from western governments towards reducing reliance on Chinese rare earth supplies, particularly after China imposed temporary export restrictions earlier this year. Following the announcement on July 10, shares of MP Materials surged 50%, reaching a three-year high, and have seen further growth since.
Implications for Australian Miners
Investment bank Morgan Stanley has highlighted the significant financial benefits for Australian rare earth miners should similar pricing structures be adopted domestically.
Impact on Lynas Corporation (ASX: LYC):
- Projected FY27 EBITDA could rise by 79%, increasing from $750 million to $1.35 billion.
- The stock’s value could shift to a multiple of 7x EV/EBITDA for FY27, a notable decrease from the current 13x multiple.
- This projection is based on applying the US$110/kg price floor to around 11.2kt of NdPr production.
Impact on Iluka Resources (ASX: ILU):
- Forecasted CY27 EBITDA might grow by 23%, from $416 million to $510 million.
- The estimate assumes application of the price floor to 2.9kt of NdPr production from the forthcoming Eneabba refinery.
- Production at this site is anticipated to commence in CY27.
These figures underscore the transformative potential of guaranteed pricing for the sector, especially in the current, relatively subdued market environment.
Current Market Pricing Context
To contextualise these projections, Lynas was trading rare earths at A$60.2/kg during the June quarter. This represents a considerable recovery from lows of A$40/kg in December 2024, yet it still falls short of the highs experienced in early 2022, where prices reached US$145/kg.
A price floor of US$110/kg would ensure a substantial premium over current rates, providing reliable revenue streams that could facilitate significant expansion and mitigate project risks. Lynas has existing contracts with Japan Australia Rare Earths, but it remains open to pursuing higher-priced contracts should they arise.
For Iluka Resources, establishing long-term pricing assurances is vital as its Eneabba refinery is still under construction. Securing this pricing framework ahead of production would alleviate project risks and potentially speed up development timelines.
Conclusion
The recent spike in rare earth stocks signifies more than just fluctuations in commodity prices; it heralds a fundamental shift towards securing strategic minerals, influencing project financials significantly. Although the Australian government has not yet confirmed the introduction of a price floor, the US’s recent agreement and the strategic relevance of rare earths suggest that policy backing may soon be forthcoming.
