Upgrade alert: Goldman Sachs says this ASX 200 mining share is 'undervalued'

Goldman Sachs has just become bullish on this mining share. But why?

| More on:
A smiling woman holds a Facebook like sign above her head.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Lynas Rare Earths Ltd (ASX: LYC) shares are pushing higher on Wednesday.

In afternoon trade, the ASX 200 rare earths mining share is up almost 3% to $6.67.

Why is this ASX 200 mining share rising?

The catalyst for this gain appears to have been a broker note out of Goldman Sachs this morning.

According to the release, the broker has upgraded its shares to a buy rating (from neutral) with a price target of $7.40.

Based on the current Lynas share price, this implies a potential upside of approximately 11% from current levels.

Why did it upgrade its shares?

Goldman made the move on valuation grounds after factoring in the ASX 200 mining share's US refinery into its model.

It also feels that its shares are "undervalued" compared to one of its US-based peers. Goldman explains:

Undervalued after incorporating US refinery into base case model: the stock is trading at ~0.8x NAV (A$7.78/sh) and pricing in just US$68/kg NdPr vs. spot at US$71/kg and our long run US$80/kg (real $, from 2027) NdPr price forecast, and on 13.5x NTM EBITDA vs key US based peer MP Materials on 15x. LYC is trading at ~15% [now 11%] below our revised PT.

Another reason for the broker's bullish stance is the company's positive growth outlook. It adds:

LYNAS 2025 target (12ktpa NdPr) likely delivered in 2026 but could be upsized to >12ktpa NdPr (not in base case) based on the Mt Weld resource, possible third party feed, and ongoing supportive global government policy: while the current 2025 target implies doubling of production at capex of ~A$1.6bn on our estimates, the high grade Mt Weld RE deposit (54.5Mt of ore @ 5.3% TREO and a reserve of 18.3Mt of ore @8.3% TREO) could support further expansions beyond 12ktpa NdPr in our view.

Overall, the broker appears to believe it could be worth taking a look at Lynas if you're wanting rare earths exposure.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

A group of miners in hard hats sitting in a mine chatting on a break as ASX coal shares perform well today
Materials Shares

Down but not out: Can these ASX mining shares bounce back?

Here’s what one broker is predicting for Australia’s largest mining companies. 

Read more »

Broker analysing the share price.
Materials Shares

Buy, hold, or sell? Broker's verdict on 3 ASX 200 materials shares

Materials was one of four market sectors that weakened in overall value in FY25.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Materials Shares

Why is this ASX mining stock crashing 14% today?

Let's see what is causing investors to hit the sell button on Monday.

Read more »

Three miners stand together at a mine site studying documents with equipment in the background
Materials Shares

$10,000 invested in BHP shares in FY25 is now worth

Did the Big Australian outperform or underperform during the last financial year?

Read more »

A male investor sits at his desk pondering at his laptop screen with a piece of paper in his hand.
Share Market News

Why did Macquarie just downgrade Liontown resources shares?

Here’s what the broker had to say about this materials company. 

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Materials Shares

Why did Macquarie downgrade Mineral Resources shares?

The broker is no longer bullish on this mining and mining services company.

Read more »

A bricklayer peers over the top of a brick wall he is laying with a level measuring tool on top and looks critically at the work he is carrying out.
Materials Shares

Brickworks shares rise 1% on trading update

Investors seem delighted by a new update from Brickworks.

Read more »

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.
Materials Shares

Does Macquarie prefer Rio or BHP shares today?

Let's find out which mining giant is the better pick right now according to the broker.

Read more »