Lynas Rare Earths is buying Meteoric Resources in an all-scrip transaction that values its takeover target at $968 million, a 68.4 per cent premium to Wednesday's share price.
Backed by Australia's richest person, Gina Rinehart, Lynas is the world's biggest producer of rare earths outside of China and the deal will give it access to Meteoric's Caldeira project in Brazil, a huge deposit of ionic clay rare earth oxide.
"Caldeira is the right asset for Lynas at the right time, squarely consistent with our Towards 2030 strategy, and we believe it is the best rare earth asset for us to pursue," Lynas chairman John Humphrey told analysts on a conference call on Thursday.
Rare earth elements have taken an outsized importance in recent years because China has gained control of about 90 per cent of the processing and refining of the minerals, a near-monopoly it has weaponised during its trade war with the United States.
"We have a great deal of confidence in where demand is heading outside China," Mr Humphrey said.
"The world has moved and shifted as far as where they want their materials to come from, and Lynas stands to benefit from that."
The 17 elements considered rare earths are vital to the creation of ultra-strong magnets used in speakers, headphones and computer hard drives, and are also used in fibre-optic cables and to colour smartphone screens.
Lynas is the world's biggest producer of rare earths outside of China thanks to its Mt Weld mine in Western Australia.
Rare earths concentrate mined there is initially processed in Kalgoorlie and then shipped to a 100-hectare Lynas facility in Malaysia for further processing.
Lynas said the initial plan is for the Malaysian plant to also process ore from Caldeira once that mine is operational.
It expects to spend over $US500 million ($720 million) on its construction but is well-placed to fund it with $1.2 billion in cash and short-term deposits on hand.
By midday, Meteoric shares had soared 50 per cent to a nearly two-year high of 25.5 cents, while Lynas shares had slumped 5.5 per cent to $13.065.
Ms Rinehart's Hancock Prospecting owns 8.2 per cent of Lynas, a stake worth about $1 billion.
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