Advisory firm BDO likens rare earths to where lithium was in 2018 and 2019 and valuation took a big hit that was followed by a round of consolidation that some players failed to survive.
“Although we haven’t yet seen a flurry of merger and acquisition transactions in the rare earths space, there are a host of rare earths companies with suppressed market values,” BDO said in findings based on a 10-year analysis of what happens to exploration companies when it becomes more difficult to raise cash.
“Whilst there still remains uncertainty around the economic extraction and processing of rare earths, we view it as a commodity of the future and given current valuations, consider it likely that it becomes a source of M&A activity.”
The dip in valuations comes as Lynas Rare Earths, the world’s biggest non-China supplier of rare earths, is on the hunt for a source of heavy rare earths to meet its commitments to the US Department of Defence.
And Iluka Resources does not have a rare earths mine in its portfolio as it builds Australia’s first integrated rare earths refinery at Eneabba in Western Australia.
Other ASX-listed rare earths hopefuls have received the backing of iron billionaires looking to diversify, notably Gina Rinehart with Arafura Rare Earths and the Forrest family with Hastings Technology Metals.
On top of deals in rare earths, BDO predicts the raft of deals in lithium and other battery minerals in the past six months is just the start.
In the latest example of consolidation, battery metal hopefuls Australian Vanadium and Technology Metals Australia Limited unveiled a $217 million merger on Monday.
The two companies have adjoining projects aimed at producing vanadium for flow batteries in Western Australia.
In lithium, Kalamazoo Resources and Toronto-listed gold miner Karora Resources are pushing ahead with plans to spin out their combined Australian-based projects into Kali Metals Ltd through an initial public offering with Bell Potter and Canaccord as lead managers.
BDO global head of natural resources Sherif Andrawes said he expected many more deals before the end of the year and believes the IPO market has bottomed out with a string of sub $10 million raisings coming up.
“In the IPO space, we’re working on about a dozen at the moment. Maybe not all of them will get away but the majority I think will come to life before the end of the year,” he said.
“The majority of those are in the battery metals and rare earths space. There are three or four that are Canadian companies, or TSX-listed companies, that are coming to do a dual listing on ASX. We are seeing that as a feature, where there’s not much for these companies in Canada but there is in Australia.”
Mr Andrawes said the lithium story was well understood in Australia but not as well in North America despite the number of explorers and established players now beating a path to regions like James Bay in Canada.
In the exploration space more broadly, Mr Andrawes said explorers remained cashed-up relative to historic levels, but this wasn’t stretching as far as it had in the past due to cost pressures faced by the industry, adding to the likelihood of M&A.
