Is Lynas an opportunity?

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Commodity prices have fallen across many resources, and now it seems rare earths metals are being hit. Prices for rare earth oxides fell 12% in May.

Rare earths producer, Lynas Corporation (LYC.AX) says its refinery in Malaysia will be operating at reduced capacity as the current rare earths market remains subdued. Prices this calendar year have continued to fall, although the company notes that some signs are emerging that prices could be stabilising. Lynas still expects demand to grow at above GDP rates over the medium to long term.

As a result, Lynas has implemented a program to reduce operating costs and expenditure and is optimising production at a lower capacity level, which is expected to last until rare earths prices are higher.

Lynas is the owner of the richest known deposit of rare earths in the world, Mount Weld in Western Australia. The ore is mined by traditional open pit methods and then processed to produce a concentrate, which is shipped to Lynas? Advanced Materials Plant (LAMP) in Malaysia. Here the concentrate is refined into the final products.

Rare earths are a set of seventeen chemical elements, including lanthanium, cerium, samarium, europium and terbium. While they are called ?rare earths?, they are actually quite abundant, but are often of low quality and rarely present in economic concentration. They are increasingly used in many of today?s modern products, including iPhones, LCD and plasma televisions, disk drives and hybrid vehicles.

The ?rarity? of commercial concentrated deposits of rare earths and a forecast of increasing demand has meant that several companies are now in the process of exploring for and developing rare earth projects. These include Australian companies Arafura Resources (ARU.AX), Peak Resources (PEK.AX) and Metallica Minerals (MLM.AX).

Foolish takeaway

While Lynas has faced several issues in the past, primarily with its refining plant in Malaysia, the company is streets ahead of its Australian competitors, with an operational mine and processing facility. Should rare earths prices rise as demand increases, Lynas could be an opportunity at current prices.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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