MP Materials-Lynas merger could unlock value, Macquarie analysts say

The Lynas Rare Earths processing plant in Kalgoorlie, Western Australia. Picture: Bloomberg

Macquarie analysts say Lynas would deserve a premium in a takeover, due to its fundamental value, market position and processing capability.

The analysts have focused on the stock since it confirmed a week ago it had held discussions with MP Materials Corp about a potential transaction.

MP Materials also held talks with Lynas a long time ago, but the latest talks around the start of the year did not gain much traction.

But Macquarie analysts say value could be unlocked in a merger between Lynas and MP Materials and that the conversion ratio would be key.

As of February 2, Lynas had a market value of $5.5bn, while MP’s market cap was smaller at $4.7bn.

Both Lynas and MP are dominant players in the rare earths industry outside China, with about 20 per cent market share collectively.

While Lynas has a tier-one mine, midstream processing intellectual property and latent processing capacity, it lacks an onshore US presence.

MP has an entrenched US footprint, but its downstream processing is still ramping up.

“A collective entity could address these issues and unlock synergies, in our view,” said Macquarie in a research note.

At the Diggers and Dealers conference in Kalgoorlie last year, Lynas boss Amanda Lacaze flagged that acquisitions were on the agenda for Lynas.

Macquarie analysts believe that Lynas would deserve a premium because of its stand-alone value, particularly with its Mt Weld mine in Western Australia, and other attributes.

“We believe Mt Weld’s asset attractiveness, unique market position (being the only separated rare earths producer outside of China at scale), and proven processing capabilities would be key to unlock potential synergies and rerating potential,” they said.