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Australian rare earth stock soars on MP Materials' multibillion US dollar deal

The shares of Australian rare-earths miners including Lynas, Iluka Resources and MP Materials, which is based in the United States, surged on Friday following a multi-billion dollar deal between MP Materials and the U.S. Government to increase production of rare-earth magnets.

Lynas Rare Earths - the largest rare earths producer in the world outside China - surged up to 20%, reaching its highest level since mid August 2022. It was on track for its best day ever since April 2020. Iluka's intraday gains were the highest ever, with a 27% increase.

As of 0558 GMT, the stocks were the biggest gainers in the benchmark ASX 200, which was also on the rise.

The U.S. Department of Defense's (DoD) deal with MP Materials has lifted the mood for Australian rare-earth firms. The deal comes after China placed restrictions on rare Earths last month, which led to a 75% decline in rare earth magnets exported from the country and forced some auto manufacturers to suspend production.

Rare earths are 17 metals that can be used to produce magnets, which are essential in the production of cars, electric vehicles, auto parts, electronics, and weapons.

The DoD, as part of this deal, will become the largest shareholder of MP Materials, and guarantee that the two most common rare earths are priced at $110 per kilo, almost double the current market price in China.

This signals a strong U.S. effort to achieve rare earth magnet autonomy, which increases the upside risk for rare earth prices. Jefferies noted that Lynas appeared to be the next logical recipient of government market assistance.

We see the resetting the pricing metrics of rare earths as providing material upside potential for Lynas earnings in the short term, and an increased possibility for de-risking its growth projects through government entity funding.

The brokerage raised its price target from A$6.40 to A$10 per share, and upgraded Lynas from "underperform". Lynas's last price was A$9.67.

Sayona Mining, a smaller lithium player, and Liontown Resources both saw their shares rise by 2.8% and 1.6% respectively. (Reporting and editing by Sonia Cheema in Bengaluru, with John Biju reporting from Bengaluru)

(source: Reuters)