Shares in Meteoric Resources Ltd (ASX: MEI) jumped 50% in early trade on Thursday after the company announced a deal to be acquired by Lynas Rare Earths Ltd (ASX: LYC).
The deal would grant Meteoric shareholders 0.0207 Lynas shares for each of the shares they held, valuing the deal at 26.6 cents.
Meteoric shares jumped 50% on the news to 25.5 cents.
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Does the deal fully value Meteoric shares?
While the deal would pay a solid premium to Meteoric shareholders, it falls well short of a price target for the company issued by Canaccord Genuity in a research note published in July, which said Meteoric was worth 40 cents per share.
At the time, the broker was very positive on a deal which Meteoric had signed with Korean giant Posco, relating to the development of Meteoric's Caldeira rare earths project in Brazil.
CG said regarding the deal:
POSCO is one of the world's largest steel producers, having had long-standing and deep involvement in upstream mining and resource projects in Australia and Brazil. In addition to steel producing inputs, POSCO has a presence in critical minerals including lithium and rare earths. In our view, the proposed partnership with POSCO is a major positive for MEI, through not only offtake (and favourable pricing mechanisms which could improve economics relative to China benchmarks), but perhaps just as importantly through its scale and access to capital and what this means for project financing.
Lynas talks up benefits of scale
Lynas said on Thursday that Meteoric shareholders would benefit from its expertise in managing rare earths projects.
The company said:
Meteoric shareholders benefit from a significant control premium and unlocking of Caldeira's value through Lynas' strong balance sheet and proven experience in developing and operating rare earth projects, while also receiving immediate exposure to the only commercial producer and supplier of light and heavy rare earth oxides outside of China. Lynas' ownership also brings opportunities to develop downstream processing in Brazil.
The Meteoric board has unanimously recommended the deal in the absence of a better offer, and Tolga Kumova, Meteoric's largest shareholder with a 6.7% stake, also supports the deal.
Lynas Chair John Humphrey said:
Lynas is very pleased with the potential to bring together the Caldeira deposit which is the largest known ionic clay rare earth Mineral Resource outside China reported in accordance with the JORC Code, and Lynas' high grade Mt Weld deposit and leading rare earth operations. This will deliver on our Towards 2030 growth objective of adding resource and scale. Expanding our operations into a new country will help Lynas maintain its leading position in the global rare earths supply chain and meet increased customer demand for rare earth materials.
Lynas shares were 5.9% lower at $13.01.
