Lynas Shares Face Pressure as Geopolitical and Operational Headwinds Converge

Shares of Lynas Rare Earths, which soared to a 14-year peak in October, have reversed sharply, shedding approximately 47% from that high. The rally, initially fueled by fears of Chinese export restrictions on critical minerals, has lost momentum. Investors are now weighing whether the company's long-term growth narrative remains intact or if further declines are imminent.

Beyond broader market forces, Lynas is confronting significant internal hurdles. The company recently reported production disruptions at its processing facility in Kalgoorlie, Australia. A power supply failure, linked to the site's reliance on a single transmission line, caused an outage. This incident is expected to reduce output for the current quarter by a volume equivalent to roughly one month's production. Analysts from UBS have highlighted the vulnerability of the local infrastructure supporting the plant.

Easing Geopolitical Tensions Remove a Key Catalyst

A major driver behind the recent sell-off is a shifting perception of supply security. Earlier enthusiasm, spurred by a U.S.-Australia pact to secure critical mineral supplies, has been dampened by diplomatic developments. A new framework agreement between the U.S. and China, which postpones export controls for at least one year, has taken speculative heat out of the sector.

Lynas had been strategically valued as a key Western alternative, given China's dominance of approximately 70% of global rare earths trade. With the immediate threat of trade blockades receding, that geopolitical premium has largely evaporated from the share price.

Should investors sell immediately? Or is it worth buying Lynas?

Diverging Analyst Views on the Path Forward

Despite the steep correction to a current price of €6.96, the stock retains a substantial year-to-date gain of about 77%. Opinions on its near-term trajectory, however, are mixed. Brokerage Ord Minnett has expressed caution regarding current valuations and advised investors to take profits. In contrast, Macquarie and UBS maintain optimistic outlooks.

UBS analysts project rising earnings for Lynas in the coming financial years. They view the current price levels as a potential entry point, based on expectations for a tight rare earths market. The company's management continues to advance expansion plans despite the share price weakness, including new facilities in Malaysia and partnerships within the U.S. defense sector.

Whether the stock has found a bottom will likely depend on two factors: the speed at which the Kalgoorlie production issues are resolved, and the durability of the current geopolitical calm.