November 29, 2022

Lynas Bets $500 Million on Rare Earths Market Expansion

Lynas Rare Earths Ltd.‘s (ASX: LYC) August 3 announcement that it will invest an additional $500 million to rewrite its own already aggressive growth plan is risky, sure, but then, when it comes to rare earths, what isn’t? Managing Director Amanda Lacaze appears to be reading the demand-pull market for Lynas’ main products, neodymium (Nd) and praseodymium (Pr), as further accelerating, despite some hits to the “green” economy from the war in Ukraine. There are sound reasons supporting such a view, including the commitments by EU auto manufacturers to cease all gasoline production by 2025 and recent (surprising) political developments in the US, especially passage of the CHIPS Act (supporting redevelopment of a US-based semiconductor industry) and the current Inflation Reduction Act (also known as Build Back Better in disguise) likely to be approved this week by the House of Representatives and signed quickly by President Biden.

Lynas is particularly well-positioned to benefit from this latest legislation as it already has two agreements with the US Department of Defense for construction of two separation plants: a $30 million light rare earths plant (deal signed in January 2022) and also in June a $120 million deal for a heavy RE plant. This in addition to Japan’s ongoing demand, a not insignificant factor as Lynas self-identifies as controlling 80% of that market.

So, if all looks positive on the demand, where are the risks? Well, unvarnished success will require the split-second timing of a juggler. Expanding output at Mt. Weld should be a green light: the deposit and its characteristics are well known and should present few obstacles to an experienced team (with the usual caveats about the weather which these days can be a real Devil).

But, there is a problem with Malaysia. Despite winning an unprecedented two EcoVadis awards, political and public concerns about radioactive materials led the Malaysian government to refuse to extend Lynas’ cracking and leaching permits. (ESG Comment: this goes to show how history haunts even companies who had nothing to do with previous problems, and how hard it can be to gain and retain trust.)

Lynas announced in February of this year that it has received Ministerial approval for its Kalgoorlie rare earth processing facility, clearing the way for construction to begin. This new facility will strip and store the radioactive elements (uranium and thorium) and then ship the “clean” material to Malaysia for final processing. Thus the timing issue. If the processing plant can be constructed in record time with no unexpected issues, it could dovetail nicely with the increased output from the mine. Otherwise, lower through-put or possibly storage of mined materials could be necessary, providing a cost hit. And even if the timing is impeccable, there will be some increased product cost due to shipping to and processing at Kalgoorlie and then onwards to Malaysia.

Nonetheless, kudos to Lynas for a bold move, going for market share in a booming market with positive political signals and economic momentum. As Christopher Ecclestone said to InvestorIntel: “Lynas just goes to show that it is a doer when so many others are just talkers in the Rare Earth space.”

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5 responses

  1. Jack Lifton Avatar
    Jack Lifton

    Subsidizing and industry, such as through the CHIPS act is just socialization of cost. All of us get to pay for the transfer of wealth to a lucky or corrupt few. The US semiconductor industry is profitable and rated AAA, financially as are the Taiwanese and Korean “chip” industries. The U.S. Congress does not understand the industrial policy of the Peoples Republic of China. It is not about throwing money at a problem (The US Congress’ specialty); it is about achieving a goal. China is a self-professed socialist economy, so of course it socializes costs. The chip industry is, in fact, seeing a decline in growth as demand pull subsides, but, of course, it will take low interest guaranteed loans and grants to beef up balance sheets and CAPEX, so as to keep the good times rolling at the bank for the executives and funds that most benefit.
    The American rare earth industry, by contrast with the CHIP industry is miniscule. It, in fact, needs a coordinated government backed effort to do a due diligence of the tiny domestic industry and select the most probable winners to support. If Lynas thinks it has a future in the American domestic economy, why does it need our money and guarantees? America needs to select not only companies but even more importantly to order our universities to focus on the key engineering and scientific studies needed to support mining, refining, fabrication and manufacturing. Social justice warriors are not hydrometallurgists; we need more of the one, we have more than enough of the other.
    Lynas had to fight a movement called Stop Lynas Save Malaysia when it was struggling to get its facility there licensed due to the prior bad acts of Japan’s Mitsubishi in improperly disposing of radioactive wastes from Malaysian rare earth ores. When will Americans create a movement called Stop Wasting our Money Save America from Itself. We need to look at critical mineral demands holistically. How do we get domestic ore transformed into critical EV components? It is not by giving money to friends of the administration to boost share prices.

    1. John Nichols Avatar
      John Nichols

      Uncle sam has kicked in 150 million through the department of defence to un shackle itself from China, in relation to rare earths. Lynas will be kicking in more then this! DOD would spend this on pizzas over a 3 year period i am tipping. Tax payer money well spent.

  2. Rare Earths Investor Avatar
    Rare Earths Investor

    Thanks for writing.

    The article hints at possible future trouble in Malaysia for Lynas re., it’s waste disposal, but remember that even the Malaysians are now talking about mining their own RE deposits and may need some serious knowledge and assistance from the ROW leader in this field (unless they go in another direction).

    Lynas and its CEO know that this is very much a race in the RE sector to prime mover positioning. N. American RE entities want to take full advantage of this clear and increasing strategic drive by the Biden Admin’ in the green sector.

    The belief that niche RE entities have all this decade and the next to emerge is, IMHO, not the case. My reading suggests that a number of CEOs of leading RE entities are really already expressing this competitive viewpoint themselves.

    Again, I like the table metaphor in that there are only so many seats at e.g., the N. American RE sector (strategic) table and a good number of these already appear to be filled.

    OEMs are searching now, not tomorrow for RE supply for their value chains. They are concerned with their ESG compliance ‘image’ and presently, based on public disclosure (e.g., anyone notice GMs latest comment on Myanmar and the company’s future HRE supply) want to be associated with the most experienced higher profile RE mining and processing entities (e.g., ASM, MP, Lynas, Iluka, Arafura EF/NEO, Vital, etc). In other words, RE entities that are most likely to overcome production problems (which will no doubt arise for new processor facilities) and can quickly produce reliable and consistent RE materials for brand image-conscious mid and end-line manufacturers.

    Clearly, I hold Lynas (and several others mentioned) and my thesis for a slew of supportive reasons is that there is serious niche RE investor money to be made to 2024, never mind beyond for informed, selective RE investors.

    Again, thanks for writing. GLTA – REI

  3. ksokwk Avatar
    ksokwk

    Now is the era of globalization, and the global industrial chain is closely linked. Under such circumstances, it will not work for the United States to dominate or monopolize a certain field or market, or to artificially cut off or exclude a certain link of the chain.

  4. TJGINDMGJ Avatar
    TJGINDMGJ

    The U.S. rare earth industry requires a coordinated government-backed effort. In essence, America is wasting money and America will fail.

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