Lynas Rare Earth’s expansion plans will face new risks in 2023 as the group pins its hopes on the Malaysian government removing restrictions on its operations in the South East Asian nation.
Lynas is planning to drastically ramp up its production of rare earth ores this year by opening a new processing plant in Western Australia in July, but the group has indicated that it is keen to keep its operations in Malaysia despite ongoing issues with the local government.
The Australian-listed miner extracts rare earth ores – 17 elements crucial to the manufacture of many hi-tech products such as mobile phones, electric cars and wind turbines – from a mine near Perth, and sends the materials to its only processing facility in Malaysia.
Lynas was hit with severe restrictions following a government review in 2018 into allegations the ore it was importing into Malaysia for processing contained radioactive material. That dispute remains unresolved and Lynas continues to have restrictions on its activities in Malaysia.
The restrictions mean Lynas has to remove the radioactive material in Australia – via a process called cracking and leaching – before it is transported to Malaysia for processing.
However, Lynas’ plans for its WA plant are so large it expects it will need to conduct some of the cracking and leaching process in Malaysia – which requires Malaysia to lift its restrictions.
The company’s bold plans come as the group’s licence to operate the plant in Malaysia is scheduled to expire in July. The licence expiry had been set for May 2023, before the government granted a two-month extension.
At the company’s shareholder meeting in November, Lynas chief executive Amanda Lacaze said the company remained on track to commence processing rare earths at a plant it is setting up in Western Australia by that time. This would solve the issue of potentially losing the licence for its only processing plant currently in operation.
However, as revealed in Malaysia’s parliament late last year, Lynas has appealed to remove the conditions from its licence altogether.
“We don’t normally say anything about this, but in parliament a couple of months ago, someone asked the minister if Lynas had applied for those conditions to be removed. And he said, ‘yes’. So it’s a matter of public record,” she said.
Lacaze said the science backs up its request: “As we said many times, there’s been four different scientific reviews. And they have all said, Lynas operations are intrinsically low risk and compliant with all regulation.”
The removal of restrictions would also help Lynas solve the problem of growing its operations to match the soaring demand for rare earths amid boom conditions for electric vehicles and wind turbines.
“We need to double our production basically” within the same time-frame management had previously planned for to raise production by 50 per cent, Lacaze told investors at the company’s shareholder meeting in November.
“That means we’ve got to do more at each stage, that we will have some additional separation assets like the proposed plant in the US. But by far the most cost-effective way ever to increase production is by increasing everything in your existing assets.”
Lacaze told the meeting this meant keeping some cracking and leaching in Malaysia to handle the increased shipment of rare earth ores from Lynas’ Mt Weld mine in Western Australia.
“Our objective would be to be able to do that. And if not, you know, we will look at other options to increase our cracking and leaching capacity. And then I mentioned in the presentation, looking at ways to be able to operate the downstream operations in Malaysia,” Lacaze said, referring to the value-added processing of its rare earths beyond the basic cracking and leaching process.
Lynas investors have prospered amid the boom conditions, with the stock – which traded around $2 pre-COVID – rising above the $10-mark just two years later.
But the soaring demand – thanks to electric cars and wind turbine demand for magnets which use Lynas’ rare earths – does not mean the stock is a risk-free investment, analysts at Macquarie Equities told investors in a note to clients.
The broker flagged potential weakness in Neodymium-Praseodymium (NdPr) prices – two rare earth elements integral to the manufacture of rare earth permanent magnets – as a threat to earnings over the next three financial years.
“Movements in rare earths prices, particularly NdPr prices, that vary compared to our forecasts present the key risk to our earnings estimates and valuation for Lynas,” Macquarie said.
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Source: Thanks smh.com