Billionaires back ASX rare earths IPOs in weak year for mining listings

The billionaires reshaping Australia's lithium scene have gone big into rare earths by backing the two largest metals and mining listings on the Australian Securities Exchange in 2023.

Brazilian Rare Earths Ltd. was the ASX's biggest metals and mining initial public offering in 2023, according to an analysis of S&P Global Market Intelligence data. The company raised A$50 million from its IPO that year. VHM Ltd. was the second-largest IPO with its A$30 million offering.

Billionaire Chris Ellison's vehicle Ellison (WA) Pty. Ltd. is VHM's top shareholder at 8.86%. VHM had the largest market capitalization of the metals and mining IPOs at time of listing at A$190.2 million, a spokesperson for ASX told S&P Global Commodity Insights.

Australian billionaire Gina Rinehart has increased her exposure to rare earths. Source: Hancock Prospecting Pty. Ltd.

Gina Rinehart, Australia's richest person, increased her exposure to rare earths by taking 6.4% of Brazilian Rare Earths. Rinehart is also the biggest shareholder in Arafura Rare Earths Ltd.

The number of IPOs by metals and mining companies, including coal and consumable fuels, fell to 24 listings from 54 in 2022.

The sector raised A$248.8 million from IPOs in 2023, or nearly a third of the ASX's total offerings that year, down from the A$504.3 million that made up roughly half of total offerings in 2022.

"Our reading of the market is that investors have become far more selective and only world-class projects and management teams are able to attract quality capital in the current environment," Bernardo da Veiga, founder and managing director of Brazilian Rare Earths, said in an email interview.

BDO corporate finance partner Adam Myers told Commodity Insights that in 2023 "people were getting fussy about their asset allocation and nervous about where interest rates were going after a flood of IPOs up to 18 months ago when we'd never been so busy. That's why we saw gold do reasonably well."

This has been reflected in the S&P GSCI Precious Metals Index holding up much better than the S&P GSCI Industrial Metals Index in recent years.

Rare earths promise

The ASX is home to over 65% of the public companies engaged in rare earth elements (REE), according to Mark Saxon, partner at Kinetic Raw Materials Consulting. Most of them saw significant declines in line with falling prices for the key magnet metals neodymium and praseodymium, which themselves ended 2023 at three-year lows, Saxon said.

Yet new participants in the rare earths sector grabbed attention, Saxon said, including "large IPOs with strong backing by major mining identities that have put Brazil and the Murray Basin of southeastern Australia [Victoria] on the map as legitimate emerging REE localities. Both regions host large deposits with the opportunity to be consistent REE suppliers to ex-Chinese customers for many decades, if not generations."

These regions also make sense for major long-term investors as they present stable, skilled and infrastructure-rich jurisdictions that can add downstream value toward REE magnet production, Saxon said.

The rare earths market remained closely linked to China in 2023, with "a strong majority of miners, feedstock buyers, processors, magnet makers and customers" from the country, Saxon said.

While fluctuations in the Chinese economy will continue to impact pricing and supply, "it is accepted in industry and government that the ex-Chinese REE supply chain needs to strengthen over the coming decade," Saxon said. China placed restrictions on rare earths processing technology exports in December 2023.

VHM is looking to develop the Goschen rare earths and mineral sands project in Victoria, Australia. It gained "major project" status from the federal government in 2021, and a new Joint Ore Reserves Committee resource estimate is due in the second quarter of 2024.

Capital markets were attracted to Brazilian Rare Earths in these tough conditions partly due to its discovery of the Monte Alto resource, da Veiga said. The asset includes a high-grade monazite sands deposit hosted from surface in free-dig, easy-to-mine material, which can "drastically reduce" capital and technical complexities in reaching commercial production, as opposed to many peers "who will need to raise billions of dollars to enter production," da Veiga said.

The miner also discovered a series of ultra-high-grade hard rock occurrences, which at the time of the IPO had an average grade of 32.7% total rare earth oxide, "multiple times higher than the highest grade operating mines currently to the best of our knowledge," along with a "very large and high-grade ionic clay deposit," da Veiga said.

Better year ahead

Fund managers and others say there is money on the sidelines ready to be redeployed in 2024 after a period of concern over industry cost pressures and doubts over investments in new listings due to some "patchy performances of some IPOs that got away," said BDO's Myers.

"Some money has been pulled out and profits have been taken. Super funds also have such huge swathes of cash that getting it out there is difficult, so some of that money will come back into the market as well," Myers said.

There appears to be a strong appetite for projects to be progressed further before listing or being spun out of other entities, Myers said. This was the case with Kalamazoo Resources Ltd.'s lithium assets in the Kali Metals Ltd. IPO, which "flew out of the blocks" after having soared 76% within two days of listing on Jan. 8, Myers said.

VHM, Ellison and Rinehart did not respond to requests for comment for this story.