The Lynas Rare Earths Ltd (ASX: LYC) share price is down 2.27% in late afternoon trading at $8.17.
So far in 2023, the ASX rare earths share has risen by 6.2% but it's down 7.5% over the past 12 months.
According to the Australian Financial Review (AFR), top broker UBS is seeing a big opportunity here.
The broker maintains a buy rating on Lynas and has a 12-month share price target of $10.30 on the stock.
That's a potential 26.1% upside for investors buying Lynas shares today.
Let's find out why UBS is bullish on Lynas.
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Why is UBS backing the Lynas share price for growth?
UBS says the outlook for rare earths commodities prices is positive. This is being driven by rising demand for renewable sources of energy and electric vehicles (EVs).
According to the AFR report, UBS said:
While we acknowledge risks to near-term production have increased, we are positive on the commodity backdrop (and price), with the demand outlook positive (EV, renewables) and supply response so far lagging.
Yesterday, Lynas reported that its operating licence in Malaysia has been extended for three years.
But as my colleague Bernd reported, the new licence prohibits Lynas from continuing to import and process lanthanide concentrate after 1 July. This is due to concerns over radioactive waste.
Lynas did apply to the Malaysian regulator to remove the prohibition but it appears without success.
UBS says this has focused attention on Lynas' replacement facility in Kalgoorlie in Western Australia.
UBS said:
We expect to hear more on Kalgoorlie's progress and any other options to see it meet customer requirements for FY24 should Kalgoorlie be delayed and/or experience a slower ramp-up.
Despite this near-term uncertainty, with a strong balance sheet and LYC's position as an established, incumbent producer in a commodity we like, we maintain our buy rating.
