Why Is Shenghe Paying a 199% Premium to Acquire Peak Rare Earths?

Deal Overview and Premium

Peak Rare Earths Limited (ASX: PEK) has entered into a binding Scheme Implementation Deed with Ganzhou Chenguang Rare Earths New Material Co., Ltd. (Chenguang), a wholly owned subsidiary of Shenghe Resources Holding Co., Limited. Under the proposed scheme, Chenguang will acquire 100% of Peak for a base consideration of A$150.5 million plus the proceeds of a non-renounceable entitlement offer expected to raise approximately A$7.5 million. This values Peak at around A$158 million, representing a substantial 199% premium to Peak's closing share price of A$0.12 on 9 May 2025.

The offer price translates to approximately A$0.359 per Peak share in cash, providing shareholders with an opportunity to realise significant value ahead of the development of Peak's flagship Ngualla Rare Earth Project in Tanzania.

Strategic Shift from Joint Venture to Acquisition

Earlier plans for a joint venture between Peak and Shenghe, involving a ~A$96 million investment by Shenghe into Peak’s subsidiary holding the Ngualla Project, were abandoned due to emerging geopolitical and regulatory risks. The new acquisition structure via a scheme of arrangement is designed to mitigate these risks, offering greater certainty and a superior risk-weighted outcome for Peak shareholders.

The Peak Independent Board unanimously recommends the scheme, subject to the absence of a superior proposal and confirmation from an independent expert that the scheme is in shareholders’ best interests. The Board highlights the transaction as a compelling opportunity to accelerate value realisation while avoiding the complexities and uncertainties of the previously proposed joint venture.

Funding and Entitlement Offer Details

To ensure Peak remains adequately funded during the scheme implementation process, the company will conduct a non-underwritten, pro-rata non-renounceable entitlement offer at A$0.10 per new share to raise up to ~A$7.5 million. Proceeds will support ongoing corporate activities, working capital, and transaction costs, as well as land compensation related to the Ngualla Project.

Shenghe’s Singapore subsidiary has committed to fully subscribe to its entitlement, representing approximately A$1.49 million. Importantly, any new shares issued under the entitlement offer will be acquired by Chenguang if the scheme proceeds.

Regulatory and Shareholder Approvals

The scheme is subject to a range of conditions precedent, including approvals from Chinese regulatory bodies such as the Ministry of Commerce and the National Development and Reform Commission, as well as Tanzanian authorities including the Fair Competition Commission and Mining Commission. The Government of Tanzania, holding a 16% free-carried interest in the Ngualla Project, has expressed support for the transaction, underscoring its importance for the expedited development of this world-class rare earths asset.

Shareholder approval will be sought at a scheme meeting anticipated in September 2025, requiring at least 75% of votes cast and a majority of shareholders present to approve the transaction. The scheme timetable targets implementation by late September or early October 2025, following court approvals.

Risks and Conditions

While the scheme offers an attractive premium, it carries execution risks including the need for successful regulatory approvals and sufficient subscription to the entitlement offer. Failure to raise the full entitlement amount or to complete the sale of Peak’s non-core Teesside site in the UK could necessitate alternative capital raising, potentially diluting shareholders and risking scheme termination. The agreement includes exclusivity provisions and break fees of A$1.55 million payable under certain termination scenarios.

Peak’s management and board emphasize the strategic rationale and shareholder value underpinning the transaction, while acknowledging the complex regulatory environment and the need for shareholder and court approvals.