In what looks to be a brow-raising move, Wesfarmers has made a bid to acquire a rare-earth producer for $1.5 billion, a foray into the clean energy space where rare-earths will play a vital role in the rollout of electric vehicles and other clean energy products.
Following the announcement on Tuesday, shares in Lynas Corporation (ASX: LYC) rose 40% to close at $2.10 with the takeover bid valuing Lynas at $2.25 per share, which was rejected within 24 hours of the unsolicited offer.
This is not the first time Wesfarmers (ASX: WES), best known for subsidiaries Coles, Bunnings and Target, has entered the resources space having previously forayed into coal, before offloading those assets in 2018.
Despite Lynas processing their rare-earth products via a chemical plant in Malaysia, they are just one of two Australian companies operating in the rare-earth space with advanced projects, the other being Northern Minerals (ASX: NTU).
It is unlikely we see rare-earth products alongside our groceries or a classic Bunnings sausage-in-bread, but the Wesfarmers bid highlights an imminent change in attitudes where it cannot be denied that rare-earths will play a major role in the products of our future.
The conditional offer from Wesfarmers is likely to reverberate into China where Chinese companies have had a monopolised stranglehold on the rare-earths market, especially the heavy rare-earths market where more than 98% of the global market is produced. Whilst the Wesfarmers bid appears a generous one at first glance, it is likely we see a fierce negotiation process which could see M&A action coming from China in a bid to retain their position in the market.
CSLA analyst Dylan Kelly suggested there was still work to be done on the offer price of $2.25 which he considered low, and has a ‘buy’ rating on Lynas.
“Every new electric vehicle requires around one to two kilograms of rare earth permanent magnets, used in their motors, and the demand growth outlook for that as a commodity is quite strong over the next 10 years,” said Kelly.
Whilst Lynas is predominantly focused on rare-earths neodymium and praseodymium , a swathe of potential industry acquisitions could see significant attention paid to Northern Minerals, whose Brown’s Range pilot plant focuses on dysprosium – a rare-earth element used in permanent magnets enabling them to withstand extremely high temperatures which is crucial for electric vehicles, wind turbines and electronics.
Highlighting market confidence in Northern Minerals is the $20 million Placement the Company recently completed, with funds raised to be applied to advancing Brown’s Range to full-scale production, capable of multiplying the pilot plant’s output, tenfold.
“The Placement will allow us to ramp up exploration at the high-grade Dazzler and Iceman prospects and strengthen the balance sheet for working capital purposes”, said Managing Director, George Bauk.
“The support for the Placement was excellent, with many parties now having a better understanding of the important role of heavy rare earths in the electric vehicle sector.”
Following the announcement of Wesfarmers $1.5 billion bid on Lynas, NTU shares closed 10.96% up at 8.1c on Tuesday.