‘In the crosshairs’: Lynas balances precarious rare earths business

Amid the tropical heat of a close Malaysian election last November, Lynas Rare Earth’s billion-dollar processing plant – yet again – gifted itself as a political punching bag for any opposition party looking for a populist cause.

The low-level radioactive waste, which is a by-product of the ore processing, has fomented local opposition since Lynas commenced operations in 2012. And the election was another crucial one, coming just months ahead of decisions that would determine the future of its operations in the country.

Anti-Lynas protestors in Malaysia in 2013.

Any day now, Malaysia’s Atomic Energy Licensing Board (AELB) will announce whether its licence will be extended. Separately, Lynas has appealed a condition on its licence which means the cracking and leaching process – which generates the low-level radioactive waste – must be moved offshore by July 1.

Lynas is racing to build and commission alternative production facilities in the West Australian gold mining town, Kalgoorlie, but an adverse decision by Malaysian authorities will cripple its immediate output at a time when demand for rare earths is soaring thanks to a boom in green industries like batteries for electric cars.

However, there are reasons for Lynas to be optimistic.

Political pragmatism rules for whichever party or political grouping that ends up in power. This was demonstrated in 2018 when the pro-Lynas ruling party were tossed out for the first time in 60 years by a coalition led by former prime minister Mahathir Mohamad.

‘I don’t think Lynas is in the crosshairs at this particular juncture in part because there is no state election [coming up] in Pahang and because the government has got so many other fires.’

As one political rival observed in a letter to a Malaysian newspaper last year, the DAP’s Wong Tack vowed to personally set the Lynas plant ablaze if it was not shut down after they won the election. They were in Mahathir’s ruling coalition, but Lynas’ plant remains intact.

In a book she released last year, the DAP’s Yeo Bee Yin, the minister for energy, science, technology, environment and climate change in Mahathir’s government, recounted how she had been overruled in her effort to scrap a Lynas’ disposal facility, describing it as a “national monument of shame”.

She said in the book, Unfinished Business, that the establishment of the site sent a message “that a developing country’s government can be bullied by a company from the developed world and had no choice but to put up with it in the name of economic development”.

“This is the very reason why, from the very beginning, I pushed – unsuccessfully – for the waste to be shipped out of the country,” she said.

Lynas Corp chief executive Amanda Lacaze has said the group needs to double its production to keep up with demand. Credit:Ian Teh

It’s a turbulent period in Malaysia’s politics. The country has twice changed governments since Mahathir’s second stint as leader unravelled in 2020. The latest person to occupy the prime minister’s office – his former understudy and foe Anwar Ibrahim – has in the past been among the politicians to call for a review of Lynas’ licence being renewed.

One of Lynas’ most vocal opponents Fuziah Salleh, who was a three-term MP in Kuantan, the electorate where the plant lies, is now a deputy minister in Anwar’s government but, surprisingly, may be less of a threat.

She was made a senator after losing her seat in the recent election and her portfolio of domestic trade and cost of living is unrelated to Lynas.

Bridget Welsh, a research associate with the Asian Research Institute at the University of Nottingham, Malaysia, said the presence of Lynas remained a highly charged issue in the south-east Asian nation and could be seen as litmus test for a new government being pressed to engage in reforms.

“I do think this is a much more pro-environmental government and I think there will be reviews of key strategies,” Welsh said.

“But I don’t think Lynas is in the crosshairs at this particular juncture in part because there is no state election [coming up] in Pahang and because the government has got so many other fires that they’re probably not going to pick this particular battle.”

Lynas chief executive Amanda Lacaze will need both the decisions on the licence and related conditions to go her way to fulfil the immense opportunity before the group. But as she told investors and analysts this week, the company is preparing for every scenario – including a worst-case.

“The best possible scenario is one where we’re running two facilities, which gives us a straight uplift in throughput, right through to one where we are required to close down one facility and operate the other,” she said.

“It will be clear long before the first of July which of those we will be required to execute.”

The best-case scenario will be a big win for investors as Lynas seeks to keep up with demand for rare earths – 17 elements crucial to the manufacture of many hi-tech products such as mobile phones, electric cars and wind turbines.

Lynas has outlined plans to increase production at its Mt Weld mine in Western Australia, and expand its rare earths processing everywhere it possibly can.

This includes retaining cracking and leaching in Malaysia on top of its new facilities in WA.

“We need to double our production basically,” Lacaze told shareholders at last year’s annual meeting.

“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.”

But it was her lack of clarity on when Kalgoorlie will be operational that drew the attention of some analysts.

Goldman Sachs Paul Young noted the timeline for matching up Kalgoorlie with the potential loss of its Malaysian license. It looks tight to say the least.

“Based on construction progress we think full ramp-up will be achieved at the end of 2023 at the very earliest, meaning either the Malaysian government must extend the waste disposal license for the cracking and leaching kilns at the Lynas (plant) or production (in Malaysia) may have to be temporarily curtailed,” he said in a report this week.

The Malaysian government appears to be cognisant of these issues. A delegation from Malaysia visited the Kalgoorlie site in December and Lacaze says Lynas is actively engaged with both the government and the regulators.

“Our position is that we have we run a low-risk operation, we are a lawful company, which is compliant with all regulations. And we have never been involved in any sort of health or environmental incident,” she says.

“All that we seek from government is that the (licence) decision is fact-based and not made on the basis of some of the alarmist statements from some activist groups – which even the IAEA (International Atomic Energy Agency) has said, have no basis in scientific fact.”

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