AFR:
Lynas linked to rare earths mega-merger as price falls bite
Brad Thompson and Andrew Tillett Updated Feb 2, 2024 – 5.41pm, first published at 4.19pm
A collapse in prices and the new Chinese trade restrictions have raised the prospect of Lynas Rare Earths joining forces with its New York-listed rival, MP Materials. Industry sources suggest Lynas and MP may be working on a deal that would bring together the world’s two biggest non-China producers of rare earths materials essential in defence and other industries.
Lynas did not respond to requests for comment on Thursday or Friday The structure of any deal remains unclear amid a slump in prices for the critical minerals and fears in the Western world about China’s stranglehold on supply.
Lynas, with a mine in Western Australia and plant in Malaysia, and MP, with its operations at California’s Mountain Pass, are the leading producers of rare earths needed in electronics, renewable energy technologies and defence systems outside China. A merger would dovetail with efforts by Canberra and the White House to deepen collaboration between Australian and US resources companies on critical minerals extraction and processing on economic and security grounds to break China’s stranglehold.
The joint Critical Minerals Taskforce last year agreed to map complementary production capacities across both countries’ supply chains, mutually recognise environmental and labour standards and boost government export funding to underpin new projects. Both Lynas and MP have been hit hard by plunging prices. MP shares are down more than 50 per cent over the last 12 months; Lynas shares have fallen about 40 per cent.
China banned the export of rare earth extraction and separation technologies in December in a move to protect its market dominance. It has also raised the spectre of cutting off supply at flash points in its relationship with the US. Lynas told The Australian Financial Review last year that it was looking for acquisitions to capitalise on the needs of its customers, including the US Department of Defence, which is anxious to wean itself off supply from China.
Lynas managing director Amanda Lacaze said at the time that the company was constantly being pitched M&A opportunities and confirmed it needed a source of heavy rare earths to complement its WA operations and meet obligations to the Pentagon.
The US military is funding a Lynas downstream processing plant in Texas in its first investment in large-scale rare earths production since World War II’s Manhattan Project. Las Vegas-headquartered MP Materials restarted its processing plant at Mountain Pass last year but, like Lynas, has been hit by weaker pricing.
MP Materials has backing from Defence, including a contract to boost heavy rare earths supply. Both companies are looking to boost capacity to produce heavy rare earths such as terbium and dysprosium to complement their strengths in light rare earths in the form of neodymium and praseodymium. Terbium and dysprosium are considered essential for the permanent magnets used in modern weapon systems and used by fighter jet manufacturers such as Lockheed Martin. Lynas is heavily backed by Japanese investors and its shareholders include mining magnate Gina Rinehart. Mrs Rinehart and Ms Lacaze are known to be on good terms.
Lynas cited weak prices stemming from a slowdown in China as a key factor behind a big fall in revenue in the December quarter. The miner’s sales plunged more than 50 per cent to $112.5 million, down from $232.7 million one year earlier. Lynas said it was close to completing an overtime and over-budget cracking and leaching plant at Kalgoorlie in WA that would complement its Malaysia operations and was also intended to supply the Texas plant.
MP posted a net loss of $US4.3 million ($6.5 million) in its most recent quarterly results, down from a profit of $US62.3 million a year earlier. However, MP chief executive James Litinsky hailed the production of separated NdPr at Mountain Pass as a milestone in “repatriating a critical national security capability”. MP is also building a facility in Texas. It ships most of the rare earths mined at Mountain Pass to China for processing by one of its biggest shareholders, Shenghe Resources. Shenghe is one of two Chinese groups with ties to a company accused of covert attempts to gain control of a strategically important WA miner, Northern Minerals.
Singapore-registered Yuxiao Fund – which is attempting to assert its influence over Northern Minerals despite an earlier block imposed by Treasurer Jim Chalmers – has a co-operation agreement with China Northern Rare Earth Group and Shanghai-listed Shenghe. Shenghe is China’s global rare earths company, with ownership stakes and offtake agreements covering international assets that include MP.
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