For Wesfarmers, the deal opens up a strategic play on a struggling niche producer with an asset in its home base of western Australia which is the world’s sole producer outside of China of the rare earths needed in everything from electric vehicles to iPhones.
It comes as Lynas’ shares have dragged along near 18 month lows as it faces hurdles over environmental licences in Malaysia where its chemicals plant is located.
Wesfarmers is mostly known as the operator behind home improvement depot Bunnings, and has recently spun off of supermarket chain Coles Group and exited coal. The conglomerate made an offer of A$2.25 per Lynas share, a near 45% premium to the miner’s last close.
“Wesfarmers have a licence to operate within basically any industry. It’s Wesfarmers’ style to buy counter-cyclically at a depressed price. They can easily afford it. I think it will be interesting to see what other bidders come out,” said an analyst for Wesfarmers who declined to be named as he was not authorised to speak to media.
The proposal, which includes a variety of conditions, is dependent on Lynas having relevant operating licences in Malaysia for a satisfactory period following the close of the deal.
“The price is far too low and other bidders will likely pay more for it,” said analyst Dylan Kelly of CLSA in Sydney.
“This also serves as a reminder of the limited political risk as well as its highly strategic nature.”
Kelly said that the bid was too cheap because it priced Lynas’s major rare earth, Neodynium at US$50/kg versus CLSA’s long term target of US$68/kg and spot of US$37/kg.
It maintained a high conviction buy on the stock.
Lynas, which is the only major rare earth elements miner outside China, is facing hurdles in licence renewals for its US$800 million plant in Malaysia.