On September 24 China Nonferrous Metal Mining walked away from a deal to buy 52% of Lynas (LYSCY), the Australian company that owns the world’s richest rare earths deposit.
In my September 11 post http://jubakpicks.com/2009/09/11/rare-earths-you-cant-build-hybrids-or-wind-turbines-without-them-and-china-is-putting-the-squeeze-on-supplies/ I laid out the case for putting shares of rare earth producers in your portfolio. Rare earth minerals are critical raw materials for new and fast growing technologies such as hybrid and electric cars and wind turbines.
The problem to date is that it’s hard to invest. China controls about 95% of global rare earth production. I did name a few companies outside China that were developing new deposits, among them Lynas. My comment then was to wait and see if a deal that would have given China’s Nonferrous Metal Mining majority ownership in Lynas fell through. I liked Lynas’ rare earth mine but I didn’t particularly want to be a minority owner in the company controlled by a Chinese mining company. Too much potential for deals that were in China’s interest but not in mine as a shareholder.
Well, now that deal, originally announced in May, is dead. The sticking point was a preference by the Australian body that had to pass on the deal, the Foreign Investment Review Board, that overseas ownership be kept to less than 50% in early-stage projects. When it came to big companies, the board’s Patrick Colmer recently told an Australia-China investment forum, the board preferred that deals be capped at 15% ownership.
The lack of majority control and limits on the number of board seats that could go to the Chinese company was a dealo breaker.
Investors in Lynas obviously like the news. The company’s U.S. traded ADRs (American Depositary Receipts) are up 6.7% as of 10:45 am (ET) on Friday, September 25.
My advice on timing a buy into any of these rare eath stocks, including Lynas, still stands. I’d wait for these redhot shares to cool down a bit before stepping up with a buy. But I’d definitely put them on my watch list for purchase at the next dip.