What does it all mean? Now we have many more questions than answers. I throw in my meagre intellect at an attempt to make sense.
A starting point – what Mahathir basically said:
The LAMP must remain operational
Only cleaned feedstock can be brought into the country
There are many companies willing to take over Lynas and run the operation compliantly.
As already mentioned there are no time frames and what was said is contradictory, inconsistent and perhaps not even feasible. For the big picture, Mahathir has tried to appease the Japanese (No LAMP closure) while at the same time appeasing the anti-Lynas fanatics (No more pollution) while also attempting to reassure the international investment community that all is fine. (And failing being an impossible trinity). He probably gets the big picture but obviously has no idea on the mechanics.
Questions then:
If Lynas operations mustn’t be closed then it follows that Yeo’s thought bubble, social media additions to license requirements (Probably her personal opinions only) don’t apply? A score for the Innovation Minister?
When must cracking and leaching stop in Malaysia? Is it when an overseas facility is set up or temporary processing with China established (A no-no with Japan, US etc.). Is this even economic or feasible? How does that reconcile with the edict that the LAMP will not close? This could drag on for years. And then what about the existing residue stockpile? Will this be conveniently converted to a permanent storage facility? (Come on Yeo, do it and remember Tun says the LAMP can’t close: Another slap in the face?)
Who are all of these eager companies wishing to take over Lynas that Mahathir claims to have inside knowledge, and take up the challenge of magically fixing everything? If relying on brokers’ (Like Yeo did on Lynas share price target) such as Toyota and Glencore, that’s hardly reliable. Besides, any such suiters still need to resolve the questions raised – perhaps there are some secret agreements to make this work.
My take away on all of this is that Mahathir has just kicked the can down the road. It remains a mess at the moment but clarification must come through shortly as detail is added.
The elephant in the room is Japan who requires secure (read non-Chinese), substantial volumes of high quality product at reasonable prices into the very long term – with a supplier that they trust. Lynas will provide all that Japan requires and is on excellent terms plus Japan also has financial influence over Lynas as an insurance policy. Letting that go is out of the question. Business dealing at the higher level in Japan tends to be based on honour and trust. Wesfarmers have certainly not acted with honour or trust having “snaked” LYC in an attempt to undermine them in an opportunistic move. I will leave it to the reader as to how Japan will view that and how they will perceive the reliability of Wesfarmers regarding the security of their requirements.
Remember also that while it’s fine to put an economic value on Lynas – the value to Japan is incalculable in terms of viability and risks to its own upstream industries. Mahathir is likely to be very mindful of this especially with critical financing arrangements provided by Japan (And Japan’s rather ominous diplomatic announcement that they “may need to intervene” in the Lynas case).
Wesfarmers may have their eye on additional Mt Weld phosphate deposits and Lynas residue solutions so a deal may be worth much more than the $2.25/share offer suggested. While Lynas would only be about 8% of Wesfarmers value in the event of a takeover, the potential for growth and profitability must be compelling. However, would the risks to Japan’s industries outweigh the potential Westfarmer’s advantage?
As I said previously, this leads me to conclude that there is a very high chance of Japan stepping in – at a much higher price.
Saint
LYC Price at posting:
$2.11 Sentiment: Buy Disclosure: Held
(20min delay)