Lynas (ASX: LYC) shares closed up 16% on March 11 on news that the group has extended its rare-earth supply deal with Japan Australia Rare Earths to 2038. It now includes an offtake agreement for a minimum of 5,000 metric tons of neodymium-praseodymium oxide at a price floor of USD 110 per kilogram.

Why it matters: The agreement supports our thesis that Lynas and Iluka Resources will benefit from Western efforts to establish a rare-earth supply chain independent of China. This is even in the absence of a government price floor like the USD 110/kg that the US government provided to MP Materials.

  • It shows that Western customers are increasingly willing to pay a “non-China” premium for rare-earth elements to secure supply and satisfy government preferences. JARE will also purchase at least half of Lynas’ heavy rare-earth production at market prices
  • Forecast volume is unchanged, but we lift our near-term NdPr price assumptions to incorporate the price floor. We also raise our assumed midcycle price to USD 120/kg—our estimate of the long-run marginal cost of production—from our previous probability-weighted assumed price of USD 105/kg.

The bottom line: We raise our fair value estimate to $10 from $7 for narrow-moat Lynas and to $9 from $8 for no-moat Iluka. Lynas appears significantly overvalued, trading about double our fair value estimate.

  • To justify Lynas’ share price under our forecast for NdPr volume to double by 2030, we would have to assume the long-term NdPr price exceeds USD 230/kg, much higher than historical averages and the price floor. China would likely have to greatly expand supply restrictions for this to be possible.
  • Iluka is also likely to benefit from higher rare-earth prices via its Eneabba refinery, which accounts for approximately 15% of our fair value estimate. Iluka screens as around 25% undervalued, likely due to subdued mineral sands markets, but we think demand and prices will recover.

Our Lynas fair value estimate is increased as we raise our assumed rare-earth prices

Lynas Rare Earths is the largest rare-earth producer outside China, with vertically integrated operations spanning mining, refining, and separation of various rare-earth oxides. It owns the Mount Weld mine in Western Australia, one of the highest-grade, lowest-cost, and longest-life rare-earth deposits in the world. It also has processing operations in Kalgoorlie, Australia, and Kuantan, Malaysia. Lynas’ main products are separated, light rare-earth neodymium and praseodymium, which account for approximately 60% of its production. They are sold to customers in the form of neodymium-praseodymium oxide. Lynas sold 6,600 metric tons of NdPr in fiscal 2025, about 10% of global supply, and we expect it to produce around 12,500 metric tons of NdPr midcycle in fiscal 2030 as it ramps up to its current nameplate while further expanding capacity.

Its customers process NdPr into NdPr metal, which is then used to manufacture permanent magnets that are used in renewables, electric vehicles, defense, and other applications.

Recently, the group expanded its facilities in Malaysia to also separate heavy rare-earth oxides such as dysprosium and terbium. It is currently the only commercial producer of separated heavy rare-earth oxides outside China.

Lynas is further expanding NdPr capacity and starting to produce additional separated rare-earth materials, including samarium. It also intends to move downstream into rare-earth metal and magnet production, potentially in Malaysia and/or with the assistance of the US government at Seadrift, Texas. Further government assistance may also come from potential price floors on Lynas’ NdPr oxide production. The group receives low-cost financing from Japan in return for priority access to the majority of its NdPr production as well as its dysprosium and terbium production, to the extent that it is possible under any future agreements with the US.

The balance sheet is strong. As of the end of December 2025, the firm had net cash of approximately $820 million. It is likely to commence paying dividends from its fiscal 2026 results.

Bulls say

  • Mount Weld is one of the world’s highest-grade rare-earth deposits with a remaining mine lifespan of more than two decades and with low sovereign risk.
  • The rare-earth industry should continue to see strong demand growth from the rollout of renewables and the growing uptake of electric vehicles.
  • Lynas will likely benefit from price support from Western governments as they seek to reduce China’s dominance of the industry.

Bears say

  • Rare-earth prices are driven by Chinese dominance of the industry; the Chinese government has artificially suppressed prices in the past.
  • Increased Western government support, including price floors for rare-earth projects, could lead to an oversupply once they are developed.
  • Customers are trying to reduce or replace their use of rare-earth materials, potentially affecting demand over the longer term.

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating:An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years.