Game, Set, Match: Lynas wins in Malaysian Courts
Lynas (AUD: LYC) has achieved another success in a Malaysian Court today in its dispute with the Save Malaysia Stop Lynas (SMSL) group, which filed an application to suspend the Company’s operating license. Lynas started production at its LAMP facility in Malaysia at the end of November, but SMSL has been relentless in its efforts to block it. The result of this latest legal episode promoted a rally for the stock, which rose over 4% in Sydney. The Malaysian court has rejected a request to override the temporary approval (TOL) of the LAMP processing plant in Malaysia in favor of Lynas. The nail biting tension for Lynas, however, is not yet over. In early February, there will be yet another hearing in the High Court of Kuantan, which will review whether or not the Company is complying within the legal boundaries of the TOL.
The Lynas facility in Kuantan, LAMP, has passed all environmental tests earning the approval of the International Atomic Energy Agency (IAEA). The intensity of the protesters’ objection and their legal action efforts , however, have less to do with Lynas than they do with the old Mitsubishi rare earths refinery, built along entirely different technical and safety standards which was blamed for the death of some employees that plant’s former employees in 1992. The SMSL campaign has now developed its own momentum, becoming an active and well funded movement, which has to perpetuate its opposition in order to justify its own existence, lacking scientific rigor and reason in their argumentations and protests. Indeed, the opposition to Lynas has become far more political than environmental in nature, having reached the halls of parliament as well. Four ministers have insisted that Lynas dispose of the processing waste by-products outside of Malaysia.
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The request is at odds with the TOL agreement, according to Lynas, which states that the Company would be allowed to store the waste on LAMP premises and be processed to be used in a material suitable for construction purpose. The waste export requirement was not part of the TOL issued last September; no clause stated the obligation to return the waste to Australia and even its conversion into another material, with commercial value, was intended to be voluntary rather than mandatory. The ministers are actually engaging in a battle that has far more to do with the 13th Election, expected to take place before by next April, than Lynas or rare earths.
Opponents of the plant are now calling for the resignation of the ministers who have to answer the issue of the approval. These include the Environment Minister, the Minister of Commerce, Science and the Minister of Health. Furthermore, it requires that the government published the license and the details contained therein. Despite the political fog that has clouded all reason out of the LAMP issue; the fact remains that Malaysia has far more incentive to promote Lynas than to block it. LAMP has become a symbol, a beacon perhaps, of the alternative to Chinese leadership or even control of the rare earth industry. The start of production at LAMP – and the Company’s priority will be to get its first sales off the ground for the time being – will have marked a milestone for the revival of the industry. The timing of LAMP’s start of production is also propitious. While, much there has been much speculation of lower economic growth in Asia, the latest statistics suggest the contrary. The manufacturing sector in China actually registered the highest levels in a year, promoting the appeal and price of commodities. Chinese stock market indices have steadily risen in expectation that the new Chairman will boost economic growth.
China has also been revamping its rare earths industry, improving production and environmental standards to raise quality and gain more control in order to uphold its leadership. The new Chinese leader has pushed for a new stimulus to the economy, which will lead to a greater acquisition and accumulation of rare earths. The outlook for rare earth prices has turned the negative tide of the past year, warranting some optimism. In addition, and speaking of political issues surrounding rare earths, there is the issue of Japanese demand for rare earths, the victory of a nationalist Prime Minister in Tokyo and Chinese supply. Chinese Rare earth miners have cut production and exports and for reasons of economics rather than its dealings with Japan. Meanwhile, the Association of Southeast Asian Nations (Malaysia, Thailand, Indonesia and Vietnam) have also been growing in 2012; Japanese investment in ASEAN has increased and as tensions persist between Tokyo and Beijing, this trend can be expected to rise in 2013: “If labor costs continue to rise and anti-Japan sentiment lingers in China, Japanese firms will inevitably look to ASEAN to diversify their risks,” says the Daiwa Institute of Research. Japanese companies have been reducing investment in China and the nationalist stance should see this pattern continue.
Japan has been looking for new production centers in Asia and new suppliers. Malaysia is one of the prime targets for Japanese interest and Lynas is in a strong position to help Japan fill the rare earths gap as it starts to shift away from Chinese sources. In other words, Lynas is in a position to make Malaysia one of the main rare earth suppliers in the world at a time when one of the main rare earth importers is seeking new sources. The timing for this ‘marriage’ is favorable and politicians will be hard pressed to swim against the tide of economic growth and technological progress.