EDITOR: | June 28th, 2022 | 24 Comments

DoD awards Australia’s Lynas $120 million to build a heavy rare earths facility in the USA: I have questions

| June 28, 2022 | 24 Comments
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Updated June 28, 2022: Lynas’ Managing Director Amanda Lacaze provides answers below

 

I was intrigued last week when the U.S. Department of Defense (DoD) made the announcement that it had awarded US$120 million to Lynas Rare Earths Ltd. (ASX: LYC) to build a 3-5 kta heavy rare earth separation system in the USA. This is in addition to the $30 million the DoD awarded to Lynas (to be matched by Lynas) in February 2021, for the same thing. My guess is that since Lynas built and operates the world’s largest light rare earth separation system in Malaysia where it processes ore from its Mt. Weld Australia monazite mine (the world’s largest worked deposit of monazite), it seemed like an easy decision for the DoD, provided it was prepared to overlook the skills of the domestic American market and the mandate to buy American and reshore. 

But, since the DoD had already agreed to provide US$30 million of an estimated (by Lynas) US$60 million to build such a facility in Texas, why, I asked myself was an additional US$120 million necessary? 

So, I drafted a set of questions for Lynas, the answers to which would be particularly important in a due diligence study for the project, in case the DoD either did not do a due diligence (my guess) or would not publicly answer the same questions citing national security concerns, or some such nonsense. 

Here are the questions I sent to Lynas at the beginning of this week: 

  1. What is the project’s location?
  2. What is the detailed CAPEX and the estimated OPEX for the system?
  3. When will the permitting be finished?
  4. Is the plant design finished (It would have to be for the permitting to be finalized)?
  5. What is the timeline for construction and first output?
  6. What exactly will be the composition of the plant’s output in individual rare earths and tonnages of each, and when will the (nameplate) target capacities be reached?
  7. Will the costs per KG of each individual rare earth and blend be competitive with the Chinese costs? 
  8. Will the US DoD be the only customer?
  9. Will any of the heavy rare earths be consigned to specific metal/alloy/magnet makers? and,
  10. From where, exactly, will the feedstocks be sourced? 

Question number 10 is extremely important since there is today no commercial production of heavy rare earths outside of China. Also of note is the fact that Lynas has never commercially produced any separated individual heavy rare earths, nor is its Malaysian plant equipped to do so. 

I am awaiting a reply to these questions from Lynas, but I will let you know when I get them. 

Publisher’s Update:

In response to the above questions InvestorIntel editor Jack Lifton received the following answers by email from Amanda Lacaze, Managing Director of Lynas on June 27, 2022:

1What is the project’s location?

Following a detailed site selection process, the facility is expected to be located within an existing industrial area on the Gulf Coast of the State of Texas.

Texas is an excellent location from which to serve our U.S. customers and support the U.S. government’s moves to strengthen its industrial base and make supply chains more resilient through a diversified supply.

2.  When will the permitting be finished? / Is the plant design finished? / What is the timeline for construction and first output?

The design of the Heavy Rare Earths plant was completed as part of the Phase 1 contract. The construction timeline will be confirmed following the completion of detailed engineering and planning. The plant is targeted to be operational in financial year 2025.

3.  What exactly will be the composition of the plant’s output in individual rare earths and tonnages of each?

A typical Heavy Rare Earths separation facility of this type would produce between 2500-3000 tonnes of heavy rare earths per year.  We would expect our Heavy Rare Earths production to be in this range.

We have publicly stated our expectation that the Light Rare Earths plant will produce approximately 5,000 tonnes per year of Rare Earths products, including approximately 1,250 tonnes per year of NdPr.

4.  Will the US Department of Defense be the only customer?

This will be a commercial facility and will be designed to serve both the U.S Defense Industrial Base and commercial manufacturers.

5.  Will any of the heavy rare earths be consigned to specific metal/alloy/magnet makers?

This facility is a positive step towards reinvigorating the domestic Rare Earths market, and we will work to encourage investment in value-added downstream processes including metal and magnet making.

6.  From where, exactly, will the feedstocks be sourced?

Feedstock for the facility will be a mixed Rare Earths carbonate produced from material sourced at the Lynas mine in Mt Weld, Western Australia. Lynas is building a new Rare Earths Processing Facility in Kalgoorlie to process the Rare Earth concentrate from Mt Weld. The material produced in Kalgoorlie will be further processed at the new Rare Earths separation facility in the United States. Lynas will also work with potential 3rd party providers to source other suitable feedstocks as they become available.


Editor:

Jack Lifton is the Editor in Chief, Critical Minerals for InvestorIntel.com, a capital market source celebrating its 21st year in business. He is also a ... <Read more about Jack Lifton>


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Comments

  • tracy weslosky

    This is a much more fascinating column than perhaps it reads. Reading between the large lobbing pauses in the above, the $120M announcement is curious to you because your suggesting that these funds are extraordinarily high for what they claim they are covering? Let’s be honest, few in our industry understand the complexities, nevermind the government. Its a nice round number, 10M per month for a year…..we can run on that.

    June 24, 2022 - 1:32 PM

  • Nick

    Hi Jack,
    In current environment of shortages, supply chain issues, and inflation, how large an SX plant can one construct for $ 60 or $ 120 or $ 150 million?

    June 24, 2022 - 8:11 PM

  • Jack Lifton

    Nick
    Probably, in the USA, a 10,000 tpa LREEs, a 15,000 tpa LREEs, and a 20,000 tpa LREE SX system.
    For HREEs d there is no need for such large plants; there simply is not enough feed stock available outside of southern Asian ionic adsorption clays and xenotime associated with tailings from cassiterite (tin) mining and heavy mineral sands.
    In addition, a dedicated SX plant for HREEs is probably over-engineering anyway. Continuous Ion Exchange systems have been successfully piloted and would be much much cheaper to build and operate. The DLA knows this to be true.
    Jack

    June 25, 2022 - 12:04 AM

  • Nick

    Thanks, Jack.
    Yes I am familiar with CIX high-purity HREE separations but did not think that this would be the route Lynas would take. Do they have in-house experience with CIX? And why Texas, if that’s still the plan?

    June 25, 2022 - 12:43 AM

    • Ally Hauptmann-Gurski

      As so many things these days are part of war preparation, I think the location choice is part of that, too, What use are all the hi-tech gadgets when you cannot source components in your country when the war is finally here. Maybe there are plans that what is currently sourced from Australia can be sourced in the US in a couple of years? Then you’d be self sufficient. Lynas had quite some trouble in Malaysia, their only production facility for a while. I once tried to find out more and found that they were so hard up that the directors chipped in money (over one Christmas period if I remember correctly). What struck me as odd was the low amount, from memory about 50 k AUD. Maybe they do know their stuff but I am not sure if I’d trust them. I have heard about their Australian mine and conclude that they did not get approval for the steps further than pre-refining (as this layperson in Australia calls it) and the war planners want it inside the USA.

      June 29, 2022 - 2:27 AM

  • Jack Lifton

    Nick,
    I am NOT saying that CIX is the way Lynas will go. I am saying that others have looked at it. Northern Minerals’ xenotime was successfully separated by Florida’s K-Technologies in-house developed CIX technology, and now the same separation system using off-the-shelf resins is being tested on ionic adsorption clays from Burundi (Rainbow). SX is just too expensive and slow. I don’t think that the DoD has the abilities to do a due diligence on separation techniques for rare earths.

    June 25, 2022 - 4:51 PM

  • Theo

    Jack should maybe read and comprehend before he shoots off his mouth. The $30m is for light rare earth separation. $120m is for heavy rare earth separation. Duh

    June 25, 2022 - 7:06 PM

    • Jack Lifton

      Theo, if you are correct then the DoD did no due diligence at all before awarding the 120 million.

      June 26, 2022 - 7:25 AM

  • Phillip Hellman

    Jack, feedstock would come from Mt Weld upgraded by processing on-site and Malaysia (SEG, plus other HREOs).

    June 26, 2022 - 4:29 AM

  • Jack Lifton

    Phillip, That makes no economic sense unless a separate stream, rich in HREEs, the oft mentioned , but so far undeveloped “Duncan deposit” is brought into xenotime production at MT Weld. Processing today in Malaysia leaves 4% of a mixed residue that is 48% samarium and just could produce a few 10s of tons of dydprosium. The DoD’s Defense Logistics Agency purchased 10 tons of Lynas’ Malaysian residue 3 years ago and consigned it to Rare Earth Salts in Nebraska for separation along with 3 million dollars to cover costs. So far, no results have been reported. In private industry a lot of people would have lost their jobs by now, but in the DoD the permanent bureaucracy just continues to blindly dole out our money to justify its exisstence.

    June 26, 2022 - 7:40 AM

    • Rare Earths Investor

      Thanks for the questioning article.

      I wrote recently about whether Lynas has now taken a prime position in terms of RE entities to lead US RE sector diversification moves? With approx., DoD funded US$30 mill (matching) for LRE processing and 120 mill (full) for HRE with both sites in Texas and a HRE production claim of 2025, I think it could be argued that Lynas is the prime mover (I hold) based on US strategic support alone.

      However, I also think your lament is very relevant –

      “…but in the DoD the permanent bureaucracy just continues to blindly dole out our money to justify its existence”.

      Remember, this is the US; a vaccine in 10 months, not 10 years. Now we’ve lost apparently $400 billion in covid unemployment, etc, relief fraud (oops)! Do we really think (regardless of right or wrong) that money will be an issue if the Biden Admin’/DoD decides it wants processing within borders?

      You can bet it’s likewise if it is decided that component making should also contained within borders. However, ‘friendly’ borders may be the focus for actual feedstock supply (a US political hotcake and a possible move to green political placation). Yet, I doubt Lynas will have difficulty in finding such supply in N. America should its own HRE prove problematic.

      Then consider the last 2 years with Covid origination/control questions, supply chain issues, Ukraine crisis, Chinese reaction to Russia and now Biden’s poll numbers which all compound to suggest that politics is/will drive (at least to 2024) much of what we see in terms of US response to military and commercial perceived needs; particularly, as regards critical metals chain diversification as the basis for participation/competition for economic growth generated by the coming new energy wave.

      I hope you get answers to your questions but having observed the Lynas CEO for a long time I don’t think she intends to let these issues stand in the way of Lynas being at the forefront of US RE sector growth re., feedstock and processing (and yes no doubt the whole DoD process will be messy but RE investors should do well with ongoing selective DD).

      JMHO, GLTA – REI

      June 26, 2022 - 11:21 AM

    • Tim Ainsworth

      Jack, the resource previously identified as ‘Duncan” has in fact been mined in the previous campaign, the ore blended with existing and successfully processed. Duncan has been identified as part of the greater CLD and not a separate deposit, the portion mined was an incursion into the planned expansion of the CLD pit.
      Probably more importantly the xenotime rich ore was identified and stockpiled, Lynas of course provided no data on what the HRE grades were in this material but as an indicator they have said they’ve been blending this xenotime ore into MtW concentrate as HRE prices rose last year. If you reflect the Dy grade for the TOTAL Duncan deposit 0.061% (richer than NTU’s supposed “Dy deposit” & greater total volume) what might be the grade of the xenotime material in isolation? Some indications Lynas has reduced the sale of SEG/HRE carbonate into China this year, perhaps based on progress USG.
      BTW, you’ve been sold a pup on those numbers based on a single feedstock, but good chance more will unfold there shortly so I’m not going to speculate here, and you are way, way low on your Dy estimates, likely +200tpa Dy equivalent, via SX.
      The REAL question is where is the magnetic REO going to go domestically??? The stated 1250tpa NdPr coincides roughly with US annual import of loose NdFeB but who is going to do the manufacture?
      After more than a decade of rhetoric we may well be on the cusp of two more full NdFeB supply chains, resource to final demand, US & EU, but both will depend on Govt support, particularly to neuter Chinese trade manipulation via VAT, your scepticism is well founded on the incessant bumbling past decade or more.

      July 8, 2022 - 2:01 PM

      • Tim Ainsworth

        From Lynas May 2019 presentation:

        “Lynas has 50t/year of Dy and 20t/year of Tb
        contained in its current SEG from CLD. Duncan
        has 3 to 4 times this quantity”

        My +200tpa Dy equivalent above clearly quite conservative, we wait for feedstock streams to be clarified.

        July 8, 2022 - 2:13 PM

      • Jack Lifton

        Tim
        Thanks for the information on HREs at Mt Weld. The real problem in the USA today across all natural resource processing is the loss of legacy domestic technological skills, and the increasing sourcing illiteracy with respect to non-fuel natural resources by both government and industry.

        July 8, 2022 - 3:26 PM

  • Frank

    US, UK & Australia want an alternative source of light/heavy rare earths that’s independent of China. They don’t care if it’s more expensive because they don’t want to give China the leverage it uses currently. It makes sense to me that US Allies will work to compete against China.

    June 26, 2022 - 3:52 PM

  • Theo

    Lynas announced the phase 1 contract for the HRE plant in July 2020. It took the DOD a year to give the go ahead. Do you think they were twiddling their thumbs in that time? Seriously, do a bare modicum of research before commenting. You’re just cheesed that the contract went to an ‘outsider’

    June 26, 2022 - 7:42 PM

    • Jack Lifton

      Theo
      During Covid all but the most essential Pentagon personnel worked from home. Due diligence on this project was by Zoom calls with each other and by video discussions with academics. I am.not “cheesed off” I am shocked by the ineptitude of the DoD.

      June 26, 2022 - 8:13 PM

  • Theo

    It was actually two years, not one. From 2020 to now, Dod has had two years to do their diligence. They’re not still ‘phoning it in’ in 2022, are they? In any case, who else could they really turn to outside China for expertise in making oxides, viably? By the way, Duncan ore, richer in heavies, is mixed in and processed with the Cld ore and has been for some time. It’s really a no brainer to select Lynas. No one else comes close to qualifying. Wrt your questions to Lynas, investors already know the answers to most of them. And of course the Dod won’t be the only customer. This business has to be economically commercially viable and Lynas is going to be supplying industry with the complete suite of rare earth oxides required for a complete non China supply chain. Lynas technical know how will also see feedstock from other potential suppliers able to be processed, if and when required. Amanda Lacaze is not in the business of making pronouncements lightly, she means what she says and has delivered in spades.

    June 27, 2022 - 12:00 AM

    • tracy weslosky

      Theo – Thank you for your comments. Please note my comment. Jack did send LYNAS these questions. I know, as I was the one who originally sent Amanda a request for a quote on this sizable financing that LYNAS was awarded. The reply I received was that she would answer Jack’s questions, and then we sent them to Lauren Lauren Stutchbury who is the Manager, Corporate Affairs.

      The larger companies take longer turnaround periods and are exceptionally formal. On Lauren’s behalf we submitted the request on the 20th. Now what would be lovely is if Lauren stepped in and posted Amanda’s replies here. We are happy to have Jack interview Amanda and I think I will recommend this to Lauren. Clearly there is an audience of interest —— but no conclusions should be made until more facts are received. This is evident by the content of this piece as it asks questions…..

      June 27, 2022 - 12:54 PM

      • Theo

        Then Jack should have held off publishing his piece until he had the facts before him. My objection is that he has stated his assumptions as fact: that Lynas was awarded two lots of money for the HEAVY rare earth facility. And that the DoD did no due diligence. Jack appears to now take it upon himself to do the due diligence in light of perceived incompetence!?

        June 27, 2022 - 8:19 PM

  • Tracy Weslosky

    This is to confirm that Amanda has responded and the responses are listed above.

    June 28, 2022 - 10:27 AM

  • Joe o

    Cix seems to be going nowhere, just like rapid SX from ucore and reemf tech they are trying. Seems like SX isn’t going anywhere, even after 10 yrs of rose tinted glasses re:all these new separation techs being tested. U know, stuff like MRT is a “ game changer”

    June 29, 2022 - 8:22 PM

    • Peter

      Spot on Joe, the technology is proven in a test tube or on a lab desk, but it’s going to take some more confidence to build a commercial sized plant in lieu of proven technology at a time when supply security is paramount.
      @Theo – There are alternatives to Lynas. I think Lynas has been a pioneer in alternative supplies of rare earths, but really survived only through the Japanese funding which I am sure came with some trade offs. Today however they have real competition from fully funded companies like Iluka Resources who will produce both Light and Heavy Rare Earth oxides in Australia. Iluka has a much better story producing the rare earths as a co-product of their mineral sands business. I can see why the DoD wants the separation facility in the US for strategic reasons, but it looks like it’s less and less required as alternatives such as Iluka come to market.

      July 5, 2022 - 9:15 PM

  • Tania

    That’s the sort of questions and comments I would expect from an uninformed punter. Not from an expert. But then Lynas was supposed to fail years ago…

    July 7, 2022 - 5:40 AM

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