Australian Rare Earth Stocks Jump After U.S. Backs MP Materials Deal
Synopsis
Australian mining shares soared on Friday following news of a huge U.S. government contract that gave new life to the nation's rare earth industry. Lynas Rare Earths and Iluka Resources, two of Australia's largest…
Australian mining shares soared on Friday following news of a huge U.S. government contract that gave new life to the nation's rare earth industry.
Lynas Rare Earths and Iluka Resources, two of Australia's largest rare earth miners, were among the biggest movers. Lynas leapt almost 20%, to a level it hadn't reached in nearly two years. Iluka jumped even more—up 27%—to be its largest intraday increase on record. Both were top performers on the ASX 200, which enjoyed modest advances.
U.S. Backs MP Materials to Increase Supply
The rush followed the U.S. Department of Defense signing a multibillion-dollar agreement with MP Materials, the dominant rare earth producer in America. Through the agreement, the U.S. government will be the firm's largest shareholder and will provide a guaranteed price of $110 per kilogram for two highly sought-after rare earth compounds, close to twice the current Chinese price.
This action comes as China, which controls the rare earth market, cut its rare earth magnet shipments by 75% during the previous month. That decline has already rattled global supply chains, with carmakers suspending production.
Why It Matters for Australia
Rare earth elements are used to produce electric vehicles, windmills, military equipment, and mobile phones. With tensions building between the West and China, nations such as the U.S. seek to limit their dependence on Chinese supply, and Australia is a top choice.
Analysts say firms such as Lynas, already a market leader, stand to gain even more now. Investment bank Jefferies upgraded its stance on Lynas, shifting its rating from "underperform" to "buy," and raised its target price to A$10 from A$6.40 a share. Lynas shares last traded at A$9.67. Jefferies also noted that with government assistance pouring into the sector, Australian miners could be able to finance new projects more readily and minimize risk.
Mining Sector Catches Fire
The rally was not exclusive to the majors. Sayona Mining and Liontown Resources, junior mining companies, also received a lift, increasing 2.8% and 1.6%, respectively. The overall sentiment in the market was positive, particularly for firms associated with clean energy and strategic minerals. With global supply chains rearranging and rare earth prices anticipated to increase, Australia's miners are again in the limelight.
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