Wesfarmers' failed bid for Lynas spotlights Northern Minerals...

Wesfarmers' failed bid for Lynas spotlights Northern Minerals astakeover target

By Anthony Barich, SNL

Tuesday, April 02, 2019 1:54 AM ET

Wesfarmers Ltd.'s rejected A$1.5 billion takeover bid for Lynas Corp. Ltd. increased the market's visibility on Northern Minerals Ltd. as a rare non-Chinese rare earths producer amid spiking dysprosium prices, experts said.

Northern Minerals' ASX share price roughly doubled from 41 Australiancents per share to 81 cents in the week leading up to March 11, during whichtime it announced a maiden inferred resource for the Dazzler deposit at the Browns Range heavy rare earths project in Western Australia. Its share price rose again after Wesfarmers announced its bid for Lynas.

Investment bank Hallgarten & Co.'s London-based Principal and MiningStrategist Christopher Ecclestone called Northern Minerals' stock price jump a"relief rally." The threat of financing had been weighing on thestock since October 2018, which a A$20 million funding package in March has now alleviated, though "Lynas fervor" was also a factor.

Northern Minerals CEO George Bauk said in an interview that Wesfarmers' move onLynas was "the best thing that's happened" in rare earths in recenttimes.

Bauk also said there has been a "definite behind-the-scenesincrease in interest" from Germany, Southeast Asia, the U.S. and Chinaamong the hybrid and electric vehicles supply chain and other high-techapplications in which rare earths are a vital element.

A key element in this improved sentiment is the awareness of dysprosium,for which Hallgarten called "the dark horse in the rare earthstakes" in a September 2018 report. According to Northern Minerals'analysis, prices of dysprosium in China have soared 20% in the past two months,having barely moved for months before that.

Hallgarten's report was triggered by an April 2018 report by researchand advisory firm Adamas Intelligence on dysprosium, which the bank said wasunusual given most of the attention in the rare earths group is often focusedon lanthanides.

Adamas Intelligence estimated that from 2013 through 2017, over 99% ofglobal dysprosium oxide, or oxide equivalent, went into producing neodymiumiron boronmagnets most commonly used in hybrid and electric vehicles.

Hallgarten said that while various companies had tried to minimizedysprosium in the hope of lowering dependence on, or at least percentages of,the mineral in magnets, "considerable amounts" of it are still neededfor high-temperature applications, and Browns Range is the world's onlydysprosium-biased rare earths project outside China to have reached fruition oflate.

Adamas Intelligence estimated that the global consumption of dysprosiumoxide for battery electric vehicle traction motors rose at a compound annualgrowth rate of 54%, from 11 tonnes to 61 tonnes from 2013 through 2017. Globalconsumption of the mineral for plug-in hybrid electric vehicle traction motorsrose 31% annually from 23 tonnes to 68 tonnes during the same period.

Ecclestone said in an interview that dysprosium is still in shortage,and "the Chinese are keeping a stiff upper lip on their supplysituation" in not wanting to let the market know that it is "wellpast" the point where its production of rare earth elements, or REE, haspeaked.

He said China's Bayan Obo would not last forever. Mine data portal Mindat said Bayan Obo has more than 40 million tonnes of REE minerals grading 3% to 5.4% REE, comprising 70% of world's known REE reserves.

Ecclestone estimated that more than 50% of REEs will come fromnon-Chinese sources by 2025 and that China's dominance of that market"will be over."

Ecclestone agreed that Wesfarmers' move had increased Northern Minerals'attractiveness as a takeover target for Lynas or even Canadian advancedmaterials producer Neo Performance Materials Inc.

Bauk believes that rare earths consumers would view Wesfarmers' movefavorably as its considerably larger balance sheet, as a A$40 billion company,would enable it to build another plant elsewhere should Malaysia shut downLynas' Gebeng plant.

While Banyantree InvestmentGroup Director Zach Riaz, who covers Wesfarmers, was surprised by theconglomerate's bid for Lynas, he said the offer was a "massivevalidation" for the strategy of non-Chinese rare earthproducers — not only Lynas but also Northern Minerals — andshowed that Wesfarmers clearly had a long-term view on the electric vehiclemarket.