(Reuters) -Australia’s Lynas Rare Earths reported a steeper-than-expected drop in its first-half profit on Wednesday, hurt by weak market prices for the metals due to subdued demand from China, with higher operating costs further eating into its earnings.
The world’s largest producer of rare earths outside China reported a net profit after tax of A$5.9 million ($3.74 million) for the six months through December 31, significantly below the Visible Alpha consensus of A$36.2 million.
It was a steep drop from its year-ago profit of A$39.54 million.
Market conditions for rare earths have been challenging over the past couple of years due to weak China demand and a soft electric vehicle outlook beyond the world’s second-largest economy.
“The rare earths market continues to be subject to complex influences”, Chief Executive Officer Amanda Lacaze said, further stating that the company sees the “current challenges as short-term issues”.
The rare earth miner’s cost of sales jumped 29% to A$205.3 million, driven by higher neodymium and praseodymium (NdPr) sales volume and a provision of A$5 million against low-value inventory and work in progress.
The commencement of additional facilities at Mt Weld, Kalgoorlie and Malaysia further added to its production costs.
Net sales revenue of A$254.3 million came in 8% higher than last year, though gains were limited by lower average China domestic price of NdPr.
“Market conditions remain unpredictable, and Lynas’ success will depend on its continued ability to balance growth ambitions with disciplined financial management”, Jefferies’ analysts said in a note.
($1 = 1.5763 Australian dollars)
(Reporting by Nichiket Sunil and Kumar Tanishk in Bengaluru; Editing by Alan Barona)
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