Wesfarmers (WES) eyes off Lynas (LYC)

Stock

Wesfarmers (WES) $33.82 as at 26/03/2019

Lynas (LYC) $1.56 26/03/2019

Event

A cashed up Wesfarmers – post Coles (COL) demerger and coal asset sale – has made its first move in its expansion plans with a $1.5b bid for rare earths miner and processor Lynas. The bid at $2.25/share is a ~45% premium to the last traded price with Lynas remaining in a trading halt this morning following the announcement.

Wesfarmers believes the deal has significant synergies with its existing chemical business while also acknowledging the need for further capital investment to ramp up Lynas’ processing assets and Mt Weld mine.

Lynas has been on the nose the past 12 months as it continues to work through environmental issues with the Malaysian government. Tapping out just shy of $3 last May, the stock has been on a volatile decline since the new Malaysian government ran their eye over the processing plant. So far, no major issues have been uncovered with the plant, although Lynas do continue to work with authorities to ensure the facility is up to scratch.

Lynas (LYC) Chart

Lynas (LYC)

One key hurdle for the deal to progress will be the status of the licence required to continue operations in Malaysia. The licence is up for renewal in September and while many suspect the company will be stretched to achieve approval in time, the company seems reasonably confident that it will be renewed.

Wesfarmers (WES) Chart

 Wesfarmers (WES)

Market Matters Take/Outlook

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