Malaysian Rare Earth Processing Plant At The Center Of An Australian Takeover Tussle
Rare earths, a family of metals essential in a range of new technologies such as electric cars and renewable energy systems, have stormed back into the headlines thanks to a $1.1 billion takeover bid for an Australian company which owns a controversial mineral processing plant in Malaysia.
Wesfarmers, a diversified industrial conglomerate with interests from retail to chemicals, has offered $1.62 a share for control of Lynas Corporation, a premium of 44.7% above the pre-bid price of its target.
Investors are unimpressed, lifting Lynas shares to $1.51, with that 11 cent gap to the bid price a sign that they believe there are too many conditions attached to the offer. They also dumped shares in Wesfarmers, knocking it down by 3.5% to $24.33 on a day when the overall Australian stock market rose marginally.
Radioactive Waste Is An Issue
What appears to be worrying shareholders in Wesfarmers is that Lynas is locked in a dispute with the Malaysian Government over its LAMP (Lynas Advanced Materials Processing) plant in East Malaysia with the threat of closure hanging over the facility which generates radioactive waste.
Lynas said in its half year report filed last month that it had resolved one of two waste management issues and was appealing the conditions on a second stream of waste demanded by Malaysia’s Atomic Energy Licensing Board.
A condition of the Wesfarmers bid is that relevant operating licences in Malaysia are in force and will remain in force for a “satisfactory period following completion of the transaction”.
The Lynas business model has been controversial since the company opted to mine rare-earth ore at Mt Weld in Western Australia and ship it to Malaysia for processing, triggering claims that Australia was simply exporting a radioactive waste problem.
Previous Malaysian governments approved the construction and operation of the LAMP plant, and in the way waste is handled. A change of government last year saw the return of Prime Minister, Mahatir Mohamad and the election of officials opposed to the project.
Ironically, after a rocky financial start, Lynas has been making strong financial gains thanks to strong demand for its rare earth products which contain neodymium and praseodymium, metals used in high-strength magnets which are found are the core of electric motors.
Lynas chief executive, Amanda Lacaze, said in her half-year report that production improvements continue to be made at LAMP with new products being developed to meet customer demand.
Japanese companies are the major buyers of what Lynas produces, partly because it is one of the few non-Chinese sources of rare earths.
Despite a one-month shutdown in the half-year to December 31 the LAMP facility produced a record 9642 tons of rare earth oxides, though lower prices cut revenue by 10.5% to $130 million. Pre-tax profit was $36.5 million.
Lacaze said the regulatory environment in Malaysia was very challenging throughout the half year.
The chief executive of Wesfarmers, Rob Scott, said his company was uniquely placed to support Lynas’s future through further capital investment to support downstream processing assets and realise the full potential of the Mt Weld orebody.
“Wesfarmers also offers highly complementary mining and chemical processing expertise and a track record of working well with diverse government and other stakeholders to deliver sustainable, prositive outcomes for local communities,” Scott said.
Scott added that there was no certainty that the bid, which he called an indicative proposal, would lead to a transaction.
Lynas chairman, Mike Harding, described the offer as “unsolicited and highly conditional”.