Risks Linger as Peak Rare Earths Faces Regulatory Hurdles in Shenghe Takeover

Transaction Overview

Peak Rare Earths Limited has announced a significant step forward with its acquisition by Shenghe Resources Holding Co., Limited. The transaction, structured as a scheme of arrangement, values Peak at approximately A$150.5 million, plus proceeds from a non-renounceable entitlement offer targeting A$7.5 million. This acquisition price represents a striking premium of nearly 200% over Peak’s last traded share price prior to the announcement, underscoring Shenghe’s confidence in Peak’s assets and future prospects.

The entitlement offer, which opens on 26 May and closes on 23 June 2025, is designed to provide Peak with the necessary funding to progress development activities at the Ngualla Project, cover working capital needs, and meet transaction costs associated with the acquisition. Notably, the offer is non-underwritten, introducing some uncertainty regarding the final amount raised, although Shenghe has committed to participate pro-rata in the offer.

Strategic Rationale and Background

This acquisition follows the discontinuation of a previously announced joint venture transaction between Peak and Shenghe, which valued Peak’s interest at around A$96 million. The current scheme offers a superior valuation and reduces regulatory and development risks for Peak shareholders by providing an immediate and attractive cash premium. The deal enjoys strong backing from the Peak Board, which unanimously recommends the scheme in the absence of a superior proposal, and has received positive signals from the Tanzanian government, a key stakeholder in the Ngualla Project.

Shenghe itself is a well-established player in the rare earths sector, with a market capitalization of approximately US$2.9 billion and a strong operational footprint in Tanzania, including recent investments in mineral sands projects. Its technical expertise and financial strength position it well to fast-track the development of the Ngualla Project, which is central to Peak’s value proposition.

Funding and Project Development

The entitlement offer is priced at A$0.10 per new share, representing a discount to recent trading prices but a substantial discount to the scheme consideration price. Funds raised will be allocated to advancing land compensation payments and other development costs at Ngualla, as well as supporting Peak’s working capital and transaction expenses. Additionally, Peak is actively negotiating the sale of its non-core Teesside site in the UK, which, if completed, will provide further financial support during the scheme implementation period.

However, the non-underwritten nature of the entitlement offer and the uncertainty surrounding the Teesside sale introduce funding risks. Should the offer be materially undersubscribed or the sale fail to deliver expected proceeds, Peak may need to seek alternative capital, potentially diluting shareholders and jeopardizing the scheme’s completion.

Regulatory and Shareholder Approvals

The scheme’s implementation is contingent on several conditions, including approval by Peak shareholders, Tanzanian regulatory bodies such as the Fair Competition Commission and Mining Commission, and Chinese regulatory authorities. The process includes court approvals and an independent expert’s assessment confirming the scheme’s benefits to shareholders. The timetable anticipates shareholder meetings in early September 2025 and completion by early October, assuming all conditions are met.

Peak’s board members, excluding one director affiliated with Shenghe, have committed to vote in favor of the scheme, signaling strong internal support. The transaction also includes customary deal protections such as exclusivity obligations and break fees to safeguard both parties’ interests.

Looking Ahead

As Peak moves toward this transformative acquisition, the market will be watching closely for shareholder vote outcomes, regulatory approvals, and the success of the entitlement offer and Teesside sale. The deal promises to unlock value for Peak shareholders while positioning Shenghe to accelerate development of a globally significant rare earths project amid growing demand for these critical minerals.