Global rare earths heavyweight Lynas (ASX:LYC) may have rejected Wesfarmers’ advances, but news of the $1.5 billion takeover play sent junior rare earths players on a bit of a run.

Is the rare earths sector about to start hotting up? Lynas itself closed up 35 per cent at $2.10 on Tuesday but reached as high as $2.17.

The rare earths miner climbed a further 1.9 per cent to close at $2.15 on Wednesday.

But Lynas has now said it does not plan to engage with the $38 billion Wesfarmers because it does not like the terms of the indicative and highly conditional proposal.

But the fact that such a big deal was even on the table in the first place has ignited investor interest in a bunch of smaller players.

More than half the 13 ASX-listed companies that have exposure to rare earths made gains of between 7 per cent and 17 per cent on the back of the news.

Pensana Metals (ASX:PM8) gained the most, climbing 16.7 per cent to an intra-day high 2.1c on Tuesday.

The company is advancing its Longonjo neodymium-praseodymium (NdPr) project in Angola.

Neodymium and praseodymium (NdPr) are expected to play a key role in the rapidly expanding green energy and electric vehicle sectors.

That’s because NdPr is used to make high-strength permanent magnets for the drivetrains of next generation EVs.

Pensana said Wesfarmers’ bid is expected to attract considerable attention from institutional investors looking to position themselves in the $300 billion electric vehicle thematic and from M&A advisors looking for the next move in the sector.

The company pointed to last week’s announcement that Boston-based Fidelity — one of the world’s largest equity funds with about $US2.5 trillion ($3.5 trillion) invested — had amassed a 5 per cent stake in Pensana.

Fidelity also happens to be a major investor of Lynas.

Pensana retraced its gains to close Wednesday back at 1.8c.

Hastings Technology Metals (ASX:HAS), which is working to bring its Yangibana rare earths project in Western Australia, climbed nearly 14 per cent to a high of 20.5c on Tuesday.

The company said yesterday that the Australian government’s Northern Australia Infrastructure Facility (NAIF) has indicated it will further investigate the potential for NAIF to provide debt finance for the Yangibana project.

Hastings managed to hang onto some of its gains, closing Wednesday at 19.5c.

New heavy rare earths producer Northern Minerals (ASX:NTU) added 12.3 per cent to its share price on the back of the bid for Lynas. It reached a high of 8.2c on Tuesday before edging back slightly to close at 8.1c yesterday.

In July last year, Northern Minerals became the first producer of heavy rare earths outside of China with the official opening of its Browns Range project in Western Australia.

Work underway at Arafura's Nolans Rare Earths pilot site
Work underway at Arafura’s Nolans Rare Earths pilot site

Arafura Resources (ASX:ARU) is also feeling a bit of investor love, with its share price climbing over 12 per cent on Tuesday to an intra-day high of 5.5c. It closed yesterday at 5.3c.

The company recently released the results of a definitive feasibility study (DFS) for its Nolans NdPr project.

The DFS indicated the project will be a low-cost producer with a net present value (NPV) of $729m and internal rate of return (IRR) of 17.43 per cent.

IRR and NPV are used to estimate the profitability of a potential operation. The higher the number, the more profitable it is.

Possibility of higher bidders

Whether Wesfarmers’ newfound love for Lynas will translate into more movement in the rare earths space remains to be seen.

CLSA analyst Dylan Kelly was reported by Reuters as saying the offer “is far too low and that other bidders will likely pay more for it”.

Nic Earner, managing director of rare earths explorer Alkane Resources (ASX:ALK), said it all comes down to Wesfarmers reasons for wanting Lynas.

“We’re yet to really hear Wesfarmers rationale,” he told Stockhead.

“For a market cap of their size, spending $1.5 billion, you would argue that whilst it’s certainly really interesting, as to how material it is, is different.

“I think we may see more movement depending on the rationale that they articulate.”

In a nutshell, if Wesfarmers is getting into rare earths because it sees good growth prospects, then interest in the sector could start to pick up.

“If they articulate that as a company, they see what we’re seeing in terms of growth in demand and supply, and therefore they’re moving into the sector for that, then I think that will be good for the sector,” Mr Earner said.

Alkane’s share price advanced 8.5 per cent to a peak of 25.5c on Tuesday. The company, which is working on getting financing for its Dubbo project in New South Wales, retained some of its gains to close at 25c on Wednesday.

It’s definitely an interesting time for the rare earths sector, particularly with the fast changing landscape surrounding demand for electric vehicles.

Faster, bigger, better

Stefan Müller, CEO of Frankfurt-based consultancy DGWA, told Stockhead in February that the electric vehicle revolution is very much coming and it’s going to be here a lot faster.

And it will be much bigger than previously thought.

Roskill forecasts neodymium demand will increase by roughly 8 per cent each year and dysprosium demand by over 13 per cent each year through to 2028.

“We see demand continuing to grow and potentially much more rapidly than people anticipate if the renewable energy and electric vehicle market grows faster than predicted,” Alkane’s Mr Earner said.

“There are supplies available, but a lot of it depends on where people want to source their supply from.

“Certainly, the Chinese state-owned enterprises can respond with increases in production, but in an increasingly protectionist world where people are saying ‘I want more of my supply chain to be in my country for my jobs’, that gives rise to the purchasing of people like Lynas or potentially new developers such as ourselves.

“Without a doubt there will be a steady increase in prices, there must be in order to encourage new supply to meet that demand onto the market.”