EDITOR: | November 1st, 2016 | 3 Comments

CEO’s magic touch puts Lynas in limelight for takeover

| November 01, 2016 | 3 Comments
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lynas_magictouch_2If I were a Lynas Corporation (ASX: LYC | OTC: LYSDY) shareholder I would pray for a higher price point of rare earths and a takeover.

The glory days of the 2011 when China was restricting rare earth exports have faded quickly. The investment market saw a plethora of miners looking to cash-in on an unprecedented opportunity.

At the forefront of the industry, with a mine in production in Gebeng, Malaysia, Lynas suffered as the price point of rare earths plummeted and its production process was underused.

And so, an obscure section of the periodic table became a Made-in-China bust.

Investors would argue that the collapse of the stock from ASD $2.55 in 2011 to the current ASD $0.06 is already apocalyptic.

Over the past 6 years as the market value of rare earths has plummeted and bludgeoned investors, many have speculated about the likelihood of a takeover.

Lynas has the looks of a takeover target. The miner now had hard data from its rare earth refinery in Gebeng, Malaysia, which has been in operation for more than three years.

It is possible that the gods of rare earths are paying attention, perhaps seeking distraction from the US presidential elections.

Lynas has changed much since over the past two and a half years.

Former Telstra executive Amanda Lacaze moved from Sydney to Kuantan on the east coast of Malaysia to exert her magic touch at turnarounds. She should be credited for averting disaster.

She reduced staff from 1000 to 700 employees, she shut down the Sydney head office, she renegotiated debt facilities, and slashed operating costs. She completed the commissioning of the company’s equipment and production increased from 50% capacity to 90% capacity from over two years ago.

She has worked through initially difficult issues with some Malaysian interest groups, boosted production levels. By all accounts she turned a company heading for collapse into an efficient, viable business.

As with most rare earth story, China is implicated. When China, the world’s largest producer of rare earths, eased export restrictions the market collapsed, sending Lynas’ share price down to about ASD 0.14 in June 2014, when Ms. Lacaze took over.

Is Lynas a candidate for a takeover?

There are four conditions precedent to a takeover:

  1. There has to been a reasonable expectation that the company will turn around, something that can be achieved if the rare earths price goes up. This invokes the fundamental rule of business to buy low;
  2. Company debt must be under control;
  3. Operations need to be rationalized, and
  4. It has to make strategic sense.

Lynas meets these four conditions aplenty. Thanks to its thriving high tech industry, Japan is the world’s second largest user of rare earths, which has been spooked by the rare earth bubble. Hence it would make strategic sense for Japanese interests to eye Lynas as a source of rare earths as a measure to reduce exposure to China’s control of the industry.

Would it make sense now to takeover Lynas? According to Ms. Lacaze, Lynas holds 50% of the market shares in Japan and has close ties with rare earth users and distributors. It would make strategic sense for one of Lynas’ customers or partners to want to securitize rare earth supply. After all there is no telling if or when the Chinese government is planning to restrict export again.


Dr. Luc Duchesne

Editor:

Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>


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Comments

  • Jack Lifton

    Luc,
    Lynas’ mine is at Mt Weld in Australia. Any takeover by a foreign company will have to pass Australia’s FIRB. And even more importantly any Japanese acquirer would need to be ready for a pissing match with a Chinese company. The LAMP is an integrated facility. Ore from Mt Weld is received at Kuantan and roasted, extracted, and separated into the light rare earths there. The ore is basically monazite and has perhaps the highest concentration of LREEs of any producing mine, some 12%. An acquirer could buy the LAMP and make a long term supply deal with an independent mining company in Australia (The loan covenants may prohibit this though). Japan sources rare earths in China, from Australia (Lynas), from Vietnam, and most likely from India. Malaysia, India, and Vietnam have cumulatively today between 35 and 40,000 tons of LREE separation capacity. I think that Lynas is very good operation. It does not have the low prices of Vietnam or India but it has large volume capacity and it is self sufficient in feed stock. The hangover of distrust and anger from Japan’s World War II conquest and occupation of Malaysia seems dissipated, but Malaysia is rapidly warming to China, so that geopolitics as well as economics and security of supply will now be involved in Lynas’ future.

    Jack Lifton

    November 1, 2016 - 9:36 PM

  • Lok

    Jack, a PRC-Japanese joint venture for taking over Lynas is a likely outcome if it happens at all.

    November 2, 2016 - 5:11 AM

  • William

    A good old fashion pissing match – or bidding war. The timid risk adverse Japanese will need to grow a couple for this to eventuate.

    November 3, 2016 - 10:20 PM

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