SYDNEY (Dow Jones)--Japanese bank Mitsubishi UFJ Financial Group Inc. (8306.TO) has taken a 9.99% stake in Australian rare earths developer Lynas Corp. (LYC.AU), according to a regulatory release Tuesday. The move underlines Japan's dependence on the company for rare earths supply following a diplomatic spat with China last year. China produces around 90% of rare earth minerals that are used in a variety of high technology products such as electronics, magnets and batteries used in hybrid automobiles, wind turbines and mobile phones. However, Lynas plans to start shipping rare earth minerals from its Mount Weld deposit in Western Australia and a processing plant in Malaysia from the first half of next year, giving it roughly one-sixth of the global market for the metals. Malaysian politicians and environmental groups have tried to stop the plant from going ahead because of fears about the slightly radioactive thorium waste it will produce, although a report by the International Atomic Energy Agency last week largely gave an all-clear to the facility. Mitsubishi's 9.99% stake in Lynas is mainly a technical result of its decision to switch US$1.7 billion worth of convertible bonds into an equity stake in Morgan Stanley (MS) last week. The Japanese firm bought the bonds during the global financial crisis, when Morgan Stanley appeared close to running out of money. The conversion gives Mitsubishi a 22% shareholding in Morgan Stanley, which in turn has a declared 10.3% shareholding in Lynas. Under Australian corporations law, the move over a 20% stake in Morgan Stanley means that Mitsubishi must declare the bank's shareholdings as being under its control. The statement shows the U.S. bank bought 170.1 million shares in Lynas in a series of transactions between May 24 and June 7 priced between A$2.07 and A$2.37 per share. At current prices, the stake is valued around A$324 million. Mitsubishi also holds around 4.8 million Lynas shares in its own right, amounting to 0.3% of the company. Japan is the world's largest importer of the rare earth minerals produced by Lynas, with companies such as Toyota Motor Corp. (7203.TO) and Shin-Etsu Chemical Co. Ltd. (4063.TO) using some of the metals for applications such as high-strength magnets and semiconductors. Lynas plans to produce 20,000 metric tons of the minerals each year once it hits full production late next year, which would give it roughly a sixth of the global rare earths market. In September, Japanese rare earths traders reported a halt of shipments from China amid a diplomatic spat between the two countries, raising fears that Beijing may use control of the commodities for leverage against major trading partners. Australian Foreign Minister Kevin Rudd promised in November that his country would be a "long-term, secure, reliable supplier of rare earths" to Japan after meeting his Japanese counterpart, Seiji Maehara. Lynas signed a supply agreement with Japanese commodities trader Sojitz Corp. (2768.TO) late last year, under which nearly half of the company's production will be allocated to the Japanese market over the next 10 years, with Sojitz managing marketing and distribution. Sojitz and the Japan Oil, Gas, and Metals National Corp.--a government-backed body designed to ensure supplies of essential commodities into Japan--also agreed to jointly fund a US$250 million financing package to accelerate Lynas' rare earths production.
I'm so glad I loaded up on some shares. This company was too undervalued