Australia’s Wesfarmers makes $1.1B bid for rare earth miner Lynas

Lynas Corporation’s Mount Weld mine is in Western Australia.(Image courtesy of Lynas Corp.)

Australian retail-to-chemicals Wesfarmers has approached a vulnerable Lynas Corp (ASX: LYC) with a A$1.5 billion ($1.1B) takeover offer that, it says, provides the financial means and political experience needed for the rare earths miner to solve its crisis in Malaysia.

The conglomerate’s cash offer of $2.25 per share represents a premium of nearly 45% on Lynas’ closing price on Monday.

While the offer sounds too generous to be true, it does come with some significant conditions. A particularly important one is that the transaction is subject to “ensuring that relevant operating licences in Malaysia are in force and will remain in force for a satisfactory period following completion of the transaction.”

“Fair enough, you might say – but if those licenses were in place, Wesfarmers’ offer would look a good deal less generous,” warns David Fickling, a Bloomberg Opinion columnist:

The longstanding problem for Lynas has been that the waste products from rare-earths production are pretty unpleasant stuff —a plaster-like substance known as phosphogypsum that’s hard to recycle because it contains traces of radioactive thorium and uranium. That fact has contributed to almost a decade of uncertainty around its Malaysian processing plant as local politicians have objected to the tailings dumps associated with the facility.

While the offer sounds too generous to be true, it does come with some significant conditions, including Lynas securing licences in Malaysia and that they remain in force for a satisfactory period following completion of the transaction.

Lynas’ Malaysian operating licence is up for renewal in September and new, tough conditions recently imposed by the Southeast Asian country pose a regulatory hurdle for the company.

The miner, one of the world’s main suppliers of rare earths outside China, has been asked to start exporting the radioactive waste produced by its Malaysian plant by Sep. 2, among other requirements.

Lynas, however, revealed last month it would not be able to comply with all the fresh demands by the given deadline.

It’s understood Wesfarmers would consider shipping the waste back to Australia as part of efforts to shore up processing operations in Malaysia.

Analysts say Wesfarmers’ unsolicited bid is highly opportunistic, as it comes at a time when Lynas’ stock price is under pressure, due to the ongoing issues in Malaysia.

CLSA mining forecaster Dylan Kelly, who has had a buy rating on Lynas for the past six months, said Wesfarmers’ offer was “far too low,” about nine times Lynas’ forecast 2020 earnings. He added other bidders would probably pay more for it.

Shares in Lynas closed up 35% at A$2.10 on Tuesday on news of the bid. Wesfarmers’ stock finished the day down 3.5% at A$33.80.

If successful, Wesfarmers acquisition would give it exposure to the booming electric vehicle (EV) market.

Lynas mines (in Western Australia) and processes (in Malaysia) rare earths to produce neodymium and praseodymium, key ingredients in permanent magnets used in EVs, energy efficient consumer devices and in the aerospace and defence industries.