Lynas Rejects Wesfarmers Proposal — Where to Next?
At time of writing, shares of Lynas Corporation Ltd [ASX:LYC]are up a further 1.91%, trading at $2.14.
The latest news out of the company is that it has rejected the acquisition proposal from Wesfarmers Ltd [ASX:WES], citing — among other things — the value of its Mt Weld ore body.
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Lynas rejects proposal and investors seem fine with that
Having seen the share price rocket up about 35% yesterday, it appears investors are comfortable with the decision to reject the proposal, as the share price has not been chopped down.
As per the announcement, the Lynas Board rejected the proposal based on the fact that ‘its value is derived from strong irreplaceable assets.’
Other factors leading to the rejection include its status as the only significant Rare Earths miner and processor outside of China, its Mt Weld ore body, and the accrued knowledge and IP that Lynas has developed in-house over the last six years.
The decision to reject the Wesfarmers proposal came quickly, indicating that the board would need a massive offer to get them to reconsider, remembering that its share price was in the $20 range as recently as 2011.
What does the future hold for Lynas?
The company is seeking to resolve issues related to its water leach purification (WLP) by-product/residue at its Malaysia plant and will be looking for further regulatory clarity from the Malaysian government.
Let’s have a look at its chart:
It has hit resistance twice recently in the $2.40 range and support in the $1.50 range.
If you are looking for a trade with sustained momentum behind it, this has yet to be fully evidenced in the 50- and 100-day moving averages, as you would expect:
Barring an unforeseen announcement concerning the regulatory environment in Malaysia, I would not be surprised to see a short-term pull-back in the Lynas share price as traders cash in on the news.
Longer term, it may be wise to wait for a trend to develop instead of buying the news.
For Money Morning