Lynas Rare Earths Ltd. (ASX: LYC), the Australian mining giant, recently breathed a sigh of relief. Malaysia’s government granted the firm a pivotal extension on their operating license, allowing them to continue importing and processing raw materials laden with naturally occurring radioactive elements until March 2026.

Previously, Malaysia had stringent reservations due to radiation concerns stemming from the cracking and leaching procedures in processing these materials. The facility in Pahang, Malaysia, has been mired in controversies surrounding radioactive waste, specifically thorium, since 2012. Malaysia had gone to the extent of instructing Lynas to shift certain radioactive waste-producing operations out of the country, even enforcing a ban on imports of raw materials with these elements.

The game-changer was Lynas’s innovative proposal: a technology that could extract thorium not just from the raw materials but also from the accumulated waste. If Lynas can effectively commercialize this method, the waste can be rapidly disposed of, while the extracted thorium might find buyers in nuclear plants worldwide.

But why is this decision so monumental for Lynas?

For starters, had Lynas not been granted this extension, the company would be staring at a gaping hole in their supply chain. Their Kalgoorlie plant in Australia would not start processing any carbonate product until the next year, and ramping up to their nameplate capacity would take potentially another nine months. This scenario would have crippled their Malaysian production for nearly three-quarters of the year, slashing their annual output by half.

Historically, Lynas imported its monazite concentrate from Mount Weld in Australia. This concentrate would then journey to Malaysia, undergoing a sulfation bake. In simpler terms, it would be combined with sulfuric acid, processed in a kiln, and subsequently undergo a water leach and purification process. But one of the waste streams from this method, which contained higher radiation levels, proved problematic.

Lynas’s ambitious plans include expanding its Magnetic Materials (Neodymium and Praseodymium) production in Malaysia, a crucial component in various modern applications ranging from magnets in wind turbines to motors in electric vehicles. With expansion plans in the pipeline and a new facility in Texas, the extended operating license in Malaysia ensures that Lynas has a consistent supply to meet global demands.

The strategic decision by the Malaysian government underscores the importance of Lynas in the global rare earth industry. With news of other major players facing operational hiccups, the industry needed a win. And this decision, undoubtedly, is a significant one. It not only secures Lynas’s position but also sends a positive signal for the rare earth industry at large.

In essence, this development underscores a harmonizing synergy of economic ambitions and environmental prudence. While the decision spells robust business prospects for Lynas, it’s also a nod to Malaysia’s commitment to environmental sustainability. The future, it seems, is both green and bright for Lynas and rare earths.

Australia’s Lynas Rare Earths Limited (ASX: LYC), the premier producer of rare earths outside China, finds itself at a crossroads as it navigates geopolitical and industry shifts. The company’s future in Malaysia remains uncertain as Kuala Lumpur reviews its stance on operations resulting in radioactive by-products. Notably, Malaysia’s operational advantages lie in its strategic location and lowered production costs, offering a competitive edge over alternatives in Texas. The latter location, although attractive, poses challenges like potential “rare earth tourism.”

In the backdrop, Lynas has seen its revenues drop due to declining rare earth prices. The recent quarter reported a fall to A$157.5 million (US$104.85 million) from A$294.5 million in the same period the previous year. However, this figure still surpasses their pre-2021 revenue marks.

Meanwhile, in the United States, Lynas is gearing up to strengthen its footprint. With the backing of the U.S. Department of Defense (DoD), Lynas USA LLC will construct the Heavy Rare Earths component of the Lynas U.S. Rare Earths Processing Facility in Texas. The updated contract with the DoD promises reimbursement for all valid construction costs. Furthermore, the U.S. Government has increased its contribution to the project from an initial US$120 million in June 2022 to approximately US$258 million.

This Texas facility is designed to bolster the U.S. rare earth supply chain, integral for both defense and commercial sectors. Once completed, it will be the only large-scale producer of separated Heavy Rare Earths outside China. Lynas has acquired a 149-acre site in Seadrift, Texas, for this endeavor, strategically located close to infrastructure, skilled labor, and potential customers. The new site also offers room for future expansion, possibly introducing downstream processing and recycling to forge a circular supply chain.

Aiming to be operational by FY2026, the Texas facility will primarily source its feedstock from the Lynas Mt Weld rare earths deposit and the Kalgoorlie Rare Earths Processing Facility in Western Australia. However, it remains open to processing from other potential sources in the future.

Amanda Lacaze, Lynas’ CEO, expressed her enthusiasm for the Texas venture, emphasizing its role in Lynas’ growth strategy. She highlighted the plant’s uniqueness as the first of its kind outside China and lauded Lynas’ position as the sole commercial scale source of separated rare earths outside China. This U.S. plant signifies a global shift towards establishing a sustainable and eco-friendly rare earths supply chain, reducing dependence on Chinese suppliers.

While the lithium-ion battery boom for EVs is getting most of the headlines, investors should not forget about the rare earths. The most valuable rare earths, neodymium (Nd), praseodymium (Pr), and dysprosium (Dy) are those used in the permanent magnets used in electric motors, key components in electric vehicles, EVs.

As shown on the graph below, China neodymium (Nd) prices are up 73% the past year as demand for the rare earth permanent magnet material continues to grow. Praseodymium (Pr) prices and dysprosium (Dy) prices are also on the rise.

Neodymium 5 year price chart

Source: Trading Economics

Lynas Rare Earths Limited (ASX: LYC) (“Lynas”) is the second largest NdPr [The trade term for the neodymium-praseodymium blend, which is the standard item of trade in the rare earth magnet raw material production industry], producer in the world. Lynas owns the Mt Weld rare earth mine, which is one of the world’s highest grade rare earths mines, and it operates there also the Mt Weld Ore Concentration Plant, both located in Western Australia.

Lynas has recently drilled up to 1 kilometer deep at Mt Weld discovering addititonal  carbonatite below the current rare earth open pit mine. Lynas stated: “The current exploration drillhole has ended in visible coarse grained REE mineralisation. First pass geochemical assay results, microscopic petrology, and mineralogical study reports are expected by November 2021 and the drilling report is expected to be completed in December 2021.”

Lynas also owns the Lynas Advanced Materials Plant (LAMP), which is an integrated manufacturing facility, preparing and separating the mixed rare earths from Mt. Weld into individual rare earth materials, located in Malaysia. In recent legal news, Lynas announced that: “….on 28 July 2021 the High Court of Malaysia at Kuala Lumpur dismissed the judicial review proceedings commenced by the anti-Lynas activists seeking review of the processes followed by the Government of Malaysia in reaching the August 2019 decision to renew Lynas Malaysia’s fourth operating licence. Lynas has received a notice of appeal by the anti-Lynas activists. Lynas intends to defend the appeal.”

In company news, Lynas recently announced a record net profit after tax of A$157 million for the 2021 financial year (July 1, 2020 to June 30, 2021). The profit was partly as a result of higher rare earths production, but mostly due to stronger rare earths pricing. Lynas stated: “Despite the global shortage of semi-conductors which affects all industries and in particular, the automotive industry, the NdFeB market is experiencing very strong growth, supporting the demand for NdPr and the Heavy Rare Earths’ blend produced by Lynas”

Lynas’ rare earth products (notably NdPr) are seeing strong demand and rising prices

Source: Lynas Rare Earths FY 21 results presentation

Latest progress at Lynas as part of their 2025 growth strategy

• Kalgoorlie Rare Earths Processing Facility (Australia) – Lynas is currently progressing their new Kalgoorlie Rare Earths Processing Facility, where site works have commenced and orders have been placed for all long lead time items. Fabrication of the five kiln shell sections is now complete. The final Environmental Review Document (ERD) has been submitted to the Australian EPA for the Kalgoorlie Project.
• LRE/HRE separation & specialty materials facility (USA) – Lynas has completed the Phase 1 detailed engineering and design work for a Heavy Rare Earths (HRE) separation facility in the USA, and it has been submitted to the US Government. The U.S, DoD is now conducting a merit evaluation of the submission. Lynas is progressing with site studies and planning for the American  integrated Rare Earths Separation Facility.

Lynas current facilities and 2025 growth strategy

Source: Lynas Rare Earths FY 21 results presentation

Closing remarks

Lynas Rare Earths is performing very well, buoyed by strong rare earth prices. Most analysts are forecasting a strong decade ahead for rare earths based on growing demand for the powerful rare earth permanent magnets used in electric motors in the automotive, aerospace, and appliance industries.

Lynas is steadily working towards achieving its 2025 growth strategy of developing new facilities to enlarge its capacities for rare earths processing and separation in Australia and the USA.

Investor interest in Lynas remains strong, because it is the largest non-Chinese based rare earth permanent magnet raw materials’ producer. Lynas trades on a market cap of A$6.4 billion. It is certainly one to follow as it makes steady progress towards achieving its 2025 growth target.