Deal rush in rare earths as west seeks to loosen China’s grip

{"text":[[{"start":8.65,"text":"A global “land grab” for rare earths assets is accelerating, with one US company alone embarking on a $3bn investment spree as Washington pushes to loosen China’s grip on the sector."}],[{"start":20.5,"text":"USA Rare Earth has struck four deals in less than a year, including the acquisitions of a metal maker that is one of the west’s few prized rare earths assets and a mine in Brazil. "}],[{"start":31.25,"text":"The lossmaking company, which until recently had no revenues, also secured $1.6bn in conditional funding this year from the US government to help finance a planned mine in Texas and a magnet factory in Oklahoma."}],[{"start":44.05,"text":"“It is something of a land grab right now,” said one mining lawyer working on several rare earths transactions. “Everyone is trying to figure out how to get to scale and be the next winner,” with smaller companies marketing their assets to “the parties that are trying to roll up and consolidate”."}],[{"start":60.599999999999994,"text":"Western governments are racing to break their heavy dependence on China for the metals, which are vital for the permanent magnets used in everything from electric vehicles and fighter jets to wind turbines and phones. "}],[{"start":null,"text":"

"}],[{"start":74.19999999999999,"text":"That has encouraged new investors to enter the space and opportunistic companies to raise cash, while pushing deals to steep valuations as a handful of well-capitalised western companies compete to build “mine to magnet” businesses."}],[{"start":88.85,"text":"USA Rare Earth chief executive Barbara Humpton told the FT there could be more “deals to be made”, adding that “our goal is not to consume and consolidate. Our goal is to elevate and scale.”"}],[{"start":100.89999999999999,"text":"Ross Bhappu, CEO of Colorado-based rival Energy Fuels, said companies with “bits and pieces of the supply chain are really interested in how they can get more involved with us”. "}],[{"start":111.49999999999999,"text":"The company in January announced plans to buy lossmaking processor Australian Strategic Materials, which turns mined material into metal, for $299mn."}],[{"start":122.69999999999999,"text":"Rare earths are first mined then processed into oxides that metal makers turn into alloys, which are bought by magnet manufacturers. While integrated “mine to magnet” groups exist in China, a lack of funding has held back western rivals."}],[{"start":137.39999999999998,"text":"“Billion-dollar investments in the rare earths industry just weren’t a thing until recently,” said David Merriman, research director at minerals consultancy Project Blue, adding that “you need that level of investment” to develop mines, processing and magnet factories simultaneously."}],[{"start":null,"text":""}],[{"start":154.14999999999998,"text":"Deals over the past few years include the reverse mergers that took MP Materials, USA Rare Earth and REalloys public, and US and Australian government backing for companies including MP, Lynas Rare Earths and Iluka Resources. "}],[{"start":169.34999999999997,"text":"Since Trump’s return to the White House, the US government has announced $18.6bn in committed and uncommitted funding to the critical minerals sector, the “vast majority” of which has been for the rare earths value chain, according to BMO analysts."}],[{"start":184.44999999999996,"text":"For miners, expanding downstream into processing means capturing more value and protecting themselves from an over-reliance on China, analysts said."}],[{"start":193.74999999999997,"text":"“Relative to extraction, the separation and metallisation steps are higher-value parts of the supply chain for rare earths,” said Oskar Lewnowski, chief executive of investment firm Orion Resource Partners."}],[{"start":207.24999999999997,"text":"Merriman said the market was “very hot”, with high valuations based not only on “the profitability of the companies” but also on their strategic value. "}],[{"start":216.29999999999998,"text":"Many rare earth companies’ share prices have jumped over the past year, giving them more firepower for non-cash deals as they race to bring rare earths, metals and magnets into production and boost their market share. "}],[{"start":230.14999999999998,"text":"“The first movers will rake up the lion’s share of the spoils,” said Lewnowski. “If they produce enough between them to cover the market, and grow to deal with growing demand, where’s the room for the other players?”"}],[{"start":242.74999999999997,"text":"Rebecca Campbell, global head of mining and metals at law firm White & Case, said: “There’s a wave of deals to be done [including more] vertical integrations.” "}],[{"start":null,"text":""}],[{"start":252.34999999999997,"text":"She added that “there are a lot of promoters trying to bring their rare earths projects to fruition, of varying levels of quality”, but only so much demand. “Once the supply chain gets filled, there will be another wave of consolidation.”"}],[{"start":265.49999999999994,"text":"USA Rare Earth has yet to build a mine itself or sell magnets commercially, and its deal with Washington has drawn scrutiny. But it has raised about $2bn from private sector investors in the past year to help finance deals. "}],[{"start":280.24999999999994,"text":"The company last month announced a $2.8bn deal to buy Serra Verde, which operates a mine and processing plant in Brazil, and that it would take a 12.5 per cent equity stake in French rare earths processor Carester for €40mn."}],[{"start":295.19999999999993,"text":"That followed its all-stock planned purchase in March of Texas Mineral Resources Corporation, with which it had been jointly developing its mine in the state, and a $217mn September deal for Less Common Metals, a lossmaking UK company that turns oxides into the metal needed by magnet makers."}],[{"start":315.54999999999995,"text":"David Abraham, an affiliate professor at Boise State University, said the company wanted to make itself “indispensable by connecting pieces of the supply chain in order to de-risk the future”."}],[{"start":326.65,"text":"LCM provided the group with its first revenues and major customers — including German magnet maker Vacuumschmelze, which may eventually compete with the US company’s own magnet-making business. Humpton said USA Rare Earth had established a “firewall” around LCM to protect other magnet makers’ intellectual property."}],[{"start":347.25,"text":"Energy Fuels was also in talks about a possible acquisition of LCM last year, according to people close to the company. The miner declined to comment on the discussions but said it was “opportunistic on M&A activity both up and downstream”. "}],[{"start":361.6,"text":"In the west, concerns that Chinese rivals will flood the market and drive down prices have held back investment in the sector for years. But that is starting to change, with governments including the US and Japan guaranteeing minimum prices for certain rare earth products."}],[{"start":null,"text":""}],[{"start":377.75,"text":"Oak McIlwain, founder of research group Reetracker, said a “tidal wave of state-backed funding” for rare earths had “moved the market into a protected phase” and was intended to “insulate western producers from the predatory pricing tactics of the past decade”."}],[{"start":392.55,"text":"Examples include a deal between Serra Verde and the US government, announced in April alongside the company’s planned takeover by USA Rare Earth. Much of its initial production — which has been in hot demand — will be bought for a minimum guaranteed price over 15 years by a special-purpose vehicle funded by the US government and unnamed private investors."}],[{"start":415,"text":"An independent third party will govern who buys from the SPV, with details still being finalised by Washington, according to Serra Verde."}],[{"start":422.85,"text":"USA Rare Earth said it did not have priority buying rights but expected to be among the SPV’s customers, adding that the acquisition would accelerate its route to profitability. That could help the group secure the $250mn revolving credit facility it must obtain by 2027, a condition of its $1.6bn government deal."}],[{"start":445.20000000000005,"text":"Thras Moraitis, Serra Verde chief executive, said the US government arrangement “de-risked” his company. Explaining the USA Rare Earth deal, he said the miner had been looking to become part of a larger group to leverage its “first-mover advantage” of producing heavy rare earths at scale outside China."}],[{"start":464.55000000000007,"text":"The west’s winners would need healthy balance sheets to scale, meaning “there probably won’t be more than three or four players that can deliver”, he said, “The number of pieces on the chessboard is very few. At some point they’ll be parcelled out.” "}],[{"start":484.1,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1778910346_1990.mp3"}