Are Lynas Rare Earths Shares Still a Buy?

Lynas Rare Earths shares (ASX: LYC) have been an outperformer so far this year, and the latest upgrade from Macquarie to ‘Outperform’ suggests there could be further in store for LYC bulls. The broker assigned a bullish rating, alongside a A$22.00 price target, betting that Beijing’s latest export restrictions will delay Western competitors and cement the Australian miner’s position as the critical non-Chinese rare earths supplier.

Lynas Rare Earths shares are trading at A$18.59, marking a remarkable 52% gain year-to-date, having also made a 52 week high just above the latest price target. The investment bank lifted its 12-month price target by 10% from previous levels, representing potential upside of approximately 18% from current levels.

Driving the upgrade in Lynas shares

Macquarie’s upgrade represents a fundamental reassessment of Lynas’s strategic value rather than a conventional earnings revision.

The broker has lifted its target valuation multiple from 12 times to 15 times EV/EBITDA while keeping production forecasts largely unchanged, signalling that the investment case now hinges on scarcity premium and geopolitical positioning rather than near-term volume growth.

The catalyst for this arrived on 22 June when China’s Ministry of Commerce added 10 US industrial and defence-linked entities to its export control list, including flagship Western rare earths producers MP Materials and USA Rare Earth. The move restricts Chinese firms from exporting dual-use items and technologies to these entities and prohibits third parties globally from re-exporting Chinese-origin controlled goods to them without approval.

Macquarie’s thesis centres on the view that these export controls will materially delay and complicate Western rival projects attempting to build rare earths value chains outside China.

Companies like MP Materials and USA Rare Earth rely heavily on Chinese equipment, reagents, and technical know-how for their processing operations. Being placed on Beijing’s control list restricts access to these critical inputs, potentially extending project timelines and increasing capital intensity for facilities designed to separate and refine rare earth elements into commercially viable products.

A Unique Position in a Fragmenting Market

Lynas operates the Mt Weld mine in Western Australia and the Lynas Advanced Materials Plant in Malaysia, making it the largest producer of separated rare earth products outside China. Crucially, the company is not on China’s export control list and has established processing capabilities that Western rivals are still attempting to replicate.

Over the past year, Lynas has brought online heavy rare earth separation circuits at LAMP, becoming the first non-Chinese producer of commercially separated dysprosium, terbium, and samarium oxides. These elements are critical for high-performance magnets used in defence applications, electric vehicles, and wind turbines, commanding higher margins and strategic importance than bulk light rare earth elements.

The company’s operational continuity received a boost in March when Malaysian authorities renewed LAMP’s operating licence for 10 years through 2 March 2036. However, the extension came with stricter conditions, including requirements to halt production of certain radioactive residue streams within five years and prohibitions on building a new permanent disposal facility for that residue.

While Malaysia knocked back certain LAMP expansion approvals in recent weeks, Macquarie sees no material hit to production for three to four years because existing quotas already cover the broker’s base case production scenario. This assessment suggests that near-term earnings forecasts remain intact despite the regulatory constraints on future expansion.

The 10-year licence extension effectively removes the immediate existential risk that had periodically weighed on the stock during previous regulatory reviews. However, the tighter conditions and a comprehensive regulatory review scheduled after the first five years of the licence period mean that medium-term policy risk remains a consideration for long-term holders.

Valuation and Multiple Expansion

Macquarie’s decision to apply a 15 times EV/EBITDA multiple represents a significant shift in how the broker frames Lynas’s investment case. Rather than valuing the company as a cyclical miner subject to commodity price swings, the higher multiple reflects an assessment that Lynas should trade more like a strategic critical minerals asset with embedded geopolitical option value.

This valuation framework draws parallels to how markets price certain defence contractors or semiconductor equipment manufacturers where strategic importance and barriers to entry command premium multiples. The fact that Macquarie is willing to maintain an Outperform rating after a 52% year-to-date rally underscores conviction that the structural improvement in the investment case justifies further upside from already elevated levels.

However, the premium valuation also introduces sensitivity to changes in the geopolitical narrative. A de-escalation in US-China tensions, policy reversals on either side, or successful acceleration of Western rival projects through government subsidies could quickly compress the multiple and pressure the share price.

Outlook

Macquarie’s upgrade positions Lynas as a relative winner in an escalating geopolitical contest over critical minerals supply chains. The broker’s willingness to lift the target multiple rather than production forecasts suggests confidence that the strategic scarcity premium will persist regardless of near-term earnings volatility.