By Darren Gray
Wesfarmers is running "a marathon" not a sprint with its bid for rare earths miner Lynas, according to a leading analyst, after the conglomerate confirmed it was still interested in buying Lynas.
Shares in Lynas closed on Friday 35.6 per cent above Wesfarmers conditional $2.25 per share cash offer made in March, with the stock's recent run raising questions about whether Wesfarmers would persist with its $1.5 billion play for Lynas, or make a bigger offer.
At Friday's $3.05 closing price, Lynas's market capitalisation is now in excess of $2 billion, and more than half a billion dollars above the Wesfarmers' offer.
Rob Scott's Wesfarmers is still interested in Lynas Corp.Credit: Philip Gostelow
Leading Credit Suisse analyst Grant Saligari expects Wesfarmers to keep waiting to see what unfolds in Malaysia, where the environment for Lynas's controversial processing plant seems to have improved recently, but Wesfarmers believes remains uncertain.
"I think they'll stick at it. I think you go into these opportunities expecting it to be more of a marathon than a sprint. So I would expect them to keep monitoring the situation and be in it for the long haul," he said.
Lynas received good news on Thursday when Malaysian Prime Minister Mahathir Mohamad said it was likely to be given approval to keep operating in the country.
"We will allow Lynas to carry on, because otherwise we will lose a big investment from Australia," he said during a visit to Japan, a major financial backer of the rare earths producer.
The comments were welcomed by investors, who pushed Lynas's shares up almost 12 per cent on Friday.
But in response to the news from Malaysia Wesfarmers said Lynas still faced "many uncertainties", adding that it would review its position once there was regulatory certainty around Lynas' operating licence in the country. Wesfarmers said its interest in Lynas was "unchanged".
Lynas has faced a lot of uncertainty about its future in Malaysia recently, because of concerns in the country about the low-level radioactive waste created by its processing plant there.
I think they'll stick at it. I think you go into these opportunities expecting it to be more of a marathon than a sprint.
Grant Saligari, Credit Suisse analyst
Lynas is the biggest producer of rare earths outside China, producing a number of rare earths used in the manufacture of permanent magnets used to make electric motors for electric vehicles, wind turbines and a vast range of appliances.
Lynas's stock price has jumped recently in response to reports that China was ready to restrict rare earths exports to the US in its trade war with US president Donald Trump.
Wesfarmers' bid for Lynas was followed less than six weeks later by its $776 million bid for Australian lithium company Kidman Resources, and was viewed as another sign from Wesfarmers of its wish to diversify and capture opportunities related to the expected surge in EVs over coming decades. Lithium is a key ingredient in EV batteries.
"It's pretty clear that Wesfarmers has identified the electric vehicle value chain as an interesting place to be strategically. And what they're looking for is ways in which they can best participate in that," Mr Saligari said.
Andrew White, resources analyst with Curran and Co, said the Lynas share price was "getting pretty high for Wesfarmers. I already knew they were going to have to raise their price to make a successful bid, but now that Lynas is trading where it is, there's obviously going to be a point at which Wesfarmers says 'Well, we're not willing to pay that price'."
Matthew Ryland from Lynas shareholder Greencape Capital said the US/China trade tensions highlighted that, "if you want security of supply from a source outside of China there's only one place in town - that's Lynas".
He also said: "There's no real surprises that the business is actually worth a lot more than perhaps what people had originally contemplated. We still think the business looks very under-valued."