Lynas Rare Earths Ltd

ASX:LYC

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, everyone. Welcome to the Lynas December 2017 Quarterly Report Conference Call. The presenters today are Amanda Lacaze, Managing Director and CEO of Lynas; Gaudenz Sturzenegger Chief Financial Officer; Andrew Arnold, General Counsel and Company Secretary; and Pol Le Roux, VP of Sales and Marketing.At the conclusion of the presentation, there will be an opportunity for Q&A. I'll now hand over to Amanda to present the results.

[Amanda M. Lacaze, CEO, MD & Executive Director]

Good morning, everybody. Welcome to the call. We have a -- because I know how many people are on the line, you don't. We've got almost a ton this time, which we are always pleased there's so many people interested in the progress of our business.So I'm just going to make a few comments, so those who've not joined the call previously, I'll make a few comments, and then we'll open up for some questions.So as we look at the December quarter, and I'm sure many of you will have already read the information, which we have posted to the ASX this morning, our December quarter was our best yet in terms of the financial outcomes. On an operating basis, we saw a $45.3 million positive cash flow, and that's after all operating costs and CapEx. And you will have noticed that our CapEx spend grew during the quarter, reflecting both the work that we've done on the second mining campaign and also the first stages of work on Lynas NEXT.The cash of $45.3 million from operations was primarily used to further improve our balance sheet. As we indicated at the last quarter, we made an early repayment on the 13th of October of USD 15 million to JARE. Just to put that in perspective, many of you will recall that as a consequence of the November amendments to our agreement with JARE, November 2016, we have an agreed cash sweep mechanism, which is effective on the 30th of June and the 31st of the 12th each year for cash above AUD 40 million to be swept as a principal repayment.What I'd just like to point out, and we've noted this on the 5B, is that 75% of any proceeds from capital raisings, and that includes monies received as a consequence of the exercise of warrants, is excluded from that cash sweep. So although at the 31st of December, we have a cash balance of $47.8 million, the cash balance relevant to the cash sweep test is approximately $40 million. So there is no further principal payment to be made from the cash, which is within the business as at 31st of December.The second thing that we did with the cash, interest payments were significant. It included $5.5 million of sort of normal incurred interests for the period from the 1st of July to the 31st of December, and there was a further $1.4 million interest paid which related to the bonds which were converted during that period. And so I just want to sort of highlight that includes the interests which was due on the calendar 2016 year, which, once again, is part of that November 2016 amendment had been postponed to 2020 or when the bonds converted, which, of course, occurred during the quarter.And the third major application of the cash was the deposit by way of a bond, which has ensured that we've met all of our outstanding historic liabilities relating to the AELB deposit here in Malaysia. We had negotiated a moratorium on some of those payments, which we had been holding as liabilities on our balance sheet. With the payments that we've made this quarter, all payments are now up-to-date according to the agreed schedule. So we come into this current quarter with our balance sheet in better shape than it has been, well, certainly under my tenure, and we expect to continue to improve the robustness of our balance sheet over time.The operating performance in the quarter had some great highlights and some which weren't sort of as solid as we've had in the prior quarter. And the first of those is really in terms of production. We had previously advised that in the quarter, we were required to undertake a shutdown to allow the regulatory inspection of the pressure vessels used in our cracking and leaching area in particular. I'm pleased to be able to advise that we've got a clean bill of health, but it certainly did cost us production tonnes in November as the shut, purely for that reason, extended to 2 of our kilns for over 10 days in terms of production disruption. I'm pleased to advise that we have identified a new strategy for dealing with this for when we have the shutdown, the regulatory shutdown, which is required in this quarter for the other 2 kilns, which will actually minimize production disruption during this quarter.The other contributor to the shortfall in production, particularly of NdPr, was that we took the opportunity when we had the kilns down to actually do some additional work to continue to improve production reliability. And you will see that this has actually had more of an impact on the NdPr production than the other materials. If you're trying to reconcile those differences, it is simply that we did actually improve our production rates and recoveries on lanthanum and cerium during the quarter, which gave us a slightly different balance and probably closer to the intrinsic balance of NdPr and La and Ce within our ore.So we made these decisions about the additional work on the basis that some short-term pain will definitely give us better future outcomes as it contributes to improved reliability of particularly our cracking and leaching operations. And of course, the other thing in terms of our production activities during the quarter, you will have seen -- you will see in the results that we are significantly progressed on our second mining campaign. It's quite exciting out of Mount Weld now as we see the pit being substantially extended. We've completed most of the overburden removal, well, it's actually pretty much all done by now, and we are now in the process of mining new ore as part of that mining campaign.If I switch then and looking at our operating performance to our sales performance, demand remained very strong, and in fact, growing in a number of segments. And so with the lower production, we did manage our orders very carefully to ensure that we met customer expectations. We only -- we focused during the quarter on meeting demand for those customers who had committed volume contracts with us. We were particularly -- we are particularly pleased to see demand growth in Japan in all products, so not just growth in the magnetic materials, but as we have continued to improve lanthanum and cerium production and quality outcomes, we've been able to qualify those products in new customers, and that has seen improvements in the received price for those materials.Of course, during the quarter, the NdPr pricing dropped from the extreme highs that we saw in August and September, and that was certainly expected that those prices, which were fueled by speculation, would probably come back somewhat. We were a little shocked, I guess, with the fact that they dropped quite as fast and as far as they did, it went from over from CNY 500 a kilo to just about CNY 250 in about a 6-week period, but has rebounded again, is now sitting around about CNY 330, and that's around about where it was in March, which was sort of after a period of slow and consistent firming of the price. We're now hopeful that we're looking at a new period of a more settled and gradual upward trend, rather than sort of the speculative jolt that we saw in the July -- sorry, in the August, September time frame.On SEG, as we've noted, we've retained all productions during the quarter in our in-stocks, and we will only reenter that market as we are able to conclude better pricing outcomes with our potential customers. And I also already have mentioned that for lanthanum and cerium, we saw very good improvements in quality during the quarter. We also, as a result of that, saw a better average price received for the material that we sold even though the market price softened a little during the quarter.I know that everyone on the call is anxious about our progress on some of the long-term contracts which we have flagged as a key part of our corporate strategy moving forward. As I indicated at our AGM, our objective is to reduce the linkage between our received prices and the published price and that really has to do with concluding contracts at various stages in the supply chain, which give us reliability of demand over time and predictability of price. As indicated at that time where we had reached an in-principle agreement, we have now finalized an agreement with Bosch who are an incredibly important Tier 1 automotive supplier, which we think is an important flag in the market. We are very close on a second major user and very well progressed on a third. We still actually have a way to go before we have as much of the NdPr contracted as we would like, but we are actively developing our contacts at various steps in the supply chain.Interestingly though, I've had a lot of conversations with investors and analysts over the past quarter about NdPr price, and so I -- my response at all times is to remind people that life will be a fairly difficult process if you invest and/or sell simply based upon sort of daily or weekly fluctuations in the NdPr price. When I'm being a little bit cheeky about it, I say, well, if you really want just exposure to NdPr pricing, then maybe you should cut out the middleman and buy a couple of containers. That's certainly what some of the traders in China do, which contributes to that volatility in price. We are on a strong and positive path to being able to create a business where we have much more resilience in our price as a result of the contracts that we are concluding with key customers. So I just want to reiterate that our investment proposition is about building a business which is not dependent on those swings and roundabouts. It will take time, but we are very confident about our ability to do that.And then finally, the costs remain well controlled, recognizing that the $8 million in mining -- combined mining and CapEx costs in this quarter is a step change from where we had been previously where our CapEx has really been fairly minimal and really, sustaining business CapEx has been fairly minimal. And I would highlight the fact that this quarter will be higher again at around about $15 million, and that really is just, once again, reflecting the fact that we will be completing the mining campaign, but it is really, we are now getting into some of the substantial heavy lifting with respect to costs associated with the -- with our Lynas NEXT project.And just reminding everybody at that the Lynas NEXT project is designed to ensure that we increase the reliability and production from our existing assets by building out capabilities, improving their operations in a way that will absolutely get us to a sustainable run rate of 500 tonnes a month of NdPr. We remain on track for doing that in the June quarter and then moving to the 600 tonnes per month of NdPr from January 2019. Isn't it scary, 2019? I'd rather that be 1999, but that's really just a personal thing, I guess.So really, just as a summary, we were very pleased with the quarter financially. When we put out the half yearly results, I think, clearly, we will provide -- I mean, this is a cash view, as we look at our P&L view and our balance sheet, the business continues to strengthen financially as a result of the actions that we've taken in this quarter. And we continue to look forward with cautious optimism about the ability to continue to improve the business.So I'll just stop there and I'm happy to take any questions. I also had -- so everyone's aware, Gaudenz, who's our CFO, here; Pol, who's our Head of Sales and Marketing; and Andrew, our Company Secretary, who are also available to respond to any detailed questions.

[Operator]

Perfect. Thank you, Amanda. [Operator Instructions] Your first question comes from Cathy Moises from Patersons.

[Cathy Moises]

Amanda, just a couple of questions. I guess with respect to your maintainable throughput of 500 tonnes of NdPr per month. Aside from the shutdown, did you actually achieve that in the other 2 months of the quarter? And then just looking at the next project, in terms of the operating costs, will they go up by 600 on 500? Or are we going to see some economies of scale when we bring NEXT into production next year?

[Amanda M. Lacaze, CEO, MD & Executive Director]

Thanks, Cathy. And I should have said, Happy New Year to everybody, but anyway Happy New Year, Cathy. 500 tonnes a month, yes, actually we did achieve in excess of 500 tonnes a month in October. We didn't quite reach it in December. The shut occurred from about, I think, it was about mid-November was when it occurred, and we had, as I said, we sort of extended the effect of that a little as we made some of these further changes to the kilns, which are detailed in the summary. But it was much closer to the 500 tonnes, much closer to 500 tonnes than it was to 400 tonnes, let's just put it that way. But we don't, as you know, we don't issue monthly volumes. In terms of the project NEXT cost, there will be some increase in operating costs. However, we would expect that it will be mostly limited to those which are directly variable, which is our chemical reagents which are used in the process and also, to some of the costs which are associated with getting concentrate to Malaysia, in particular. If we actually have to send 2,500 tonnes instead of 2,200 tonnes, there is a direct variable cost associated with those logistics. So there will be some increase, but we would expect there to be some scale benefits as well.

[Operator]

Next question is from Dylan Kelly from CLSA.

[Dylan Kelly, Research Analyst]

Just a couple of questions from me on the market outlook from the offtake contracts and the debt. So just, firstly, since we've got Pol in the room, I just wouldn't mind getting -- putting him to some use and asking around market expectations around Chinese New Year. I mean, you talk in the release about [ contrary ] of quite strong demand out of China and Japan and you also mentioned the potential for China stable restocking or strategic stockpiling. Do you have any sense or visibility of exactly what that impact is from the restocking? And if that's providing that much support at the moment in the spot markets for current prices? And do you have any sense of where we sit going into Chinese New Year where stockpiles are at? Has the recent price activity been a reflection of buying up ahead of that? And what are we likely to see in the coming weeks or just after Chinese New Year on that front?

[Pol Le Roux, Vice President of Sales & Marketing]

Okay, so you are asking what the price of NdPr will be next week, next quarter. So as Amanda said, I encourage you to go into the NdPr trading business. What I can say is that the demand for magnets is fairly strong in China and in Japan, so which is very good news to us. It's -- it increased by 10% -- the export of magnets from China increased by 10% in 2017 versus 2016 calendar year and it keeps growing, so that's very important. And Japan, our customers are really, really buying a lot these days. So the demand is there. On the supply side, most of Chinese [ rare ] producers are shut down since a week ago and they will continue being shut down until the 25th of February. So naturally, this leads to -- this should lead to a decrease in inventory. There were still, early January, some inventories in the hands of small traders, not big ones, but small traders, and I would assume that to go to an end. In parallel, it's correct, there are discussions, negotiations starting now on the new structure -- stockpiling program from the central Chinese government. So all of this should support the price of NdPr. But the one question I will not answer because I don't know is, how much the production -- the illegal production, will be controlled in China after the Chinese New Year. Overall, the balance -- as optimistic, as pessimistic and unbalanced, I would say, and that's probably what Andrew would allow me to say.

[Dylan Kelly, Research Analyst]

Okay, fair enough. So just moving to the debt...

[Pol Le Roux, Vice President of Sales & Marketing]

Allow me just one more comment on this. The price level is important. The other factor that is very important is the variability of price. So the price went, in the last 6 months, from CNY 330 to CNY 510 to CNY 330 or even CNY 250, and that is a concern for end users, and we see that result with the contract with Bosch that we signed now and other contracts that, hopefully, we'll be able to announce sometime soon. Addressing the volatility of the price is important, is still very important to end users, because everyone understand that everything is still here for very high volatility, except for the presence of Lynas.

[Amanda M. Lacaze, CEO, MD & Executive Director]

So Dylan, I think that's quite important, is that whilst we would rather not have quite such a hard landing, that little spike last year has been a helpful reminder to some of the end users that maybe where they had been lulled into a bit of a sense of security over the last couple of years about sort of when the price stayed so stubbornly low for so long, that really, they shouldn't be lulled into that sense of security. And so responsiveness to the ideas of fixing price -- prices or fixing price ranges has been much greater as a result of those price movements last year than sort of the interest levels that we were getting, say, in mid to late 2016.

[Dylan Kelly, Research Analyst]

So just further to that, does this mean that in relation to Bosch or future negotiation that you announce or contracts that you announce would perhaps indicate what portion of the price may be fixed? Could we expect, sort of, finer details as to what exactly your customers are prepared to take on in terms of limiting that risk?

[Amanda M. Lacaze, CEO, MD & Executive Director]

No is the simple answer. Just to get these major customers to agree to name them in a release that says that we have an agreement is quite significant in and of itself. You probably are aware of this, most, sort of, large industrial users are relatively publicity-shy with respect to their procurement practices. And certainly, they're not keen to be providing transparency on contract details into the market, which may or may not help them competitively.

[Dylan Kelly, Research Analyst]

Okay, understood. So if I just move to one, the debt, just in terms -- I just want an update if you had a view or an update on as to where the JARE facility or JARE facility sits right now, whether or not you wanted to maintain that as a longer-term sort of strategic debt position? Or whether or not you had any sort of advanced discussions with the Japanese recently over that, the status of that?

[Amanda M. Lacaze, CEO, MD & Executive Director]

We, of course, have ongoing discussions with our Japanese partners. And actually, I just heard from one of them just very recently. The JARE partners, as you will recall, JOGMEC and Sojitz, remain fully committed to the Lynas business, to continuing to support and develop the Lynas business and indeed, we are really at the stage of just having discussions about what future cooperations may look like in a way that continues to meet the needs of both parties, remembering that a key -- the key driver for the senior partner in the JARE relationship, which is JOGMEC, is reliability of supply to the Japanese market. And you will recall in our loan agreement that we have agreed to preferentially supply up to 3,600 tonnes a year of NdPr to the Japanese market, providing it is at no disadvantage to Lynas. Well, when we made that agreement, that number seemed quite a long way away. It is now very much within sight. So how do we sort of have sort of the marketing and supply agreements, which post date, [ you in ] sort of reaching that target is one part of it. Second part continues to be how do we work with our Japanese customers to ensure a robust outside-China supply chain. And the third one is really, and bearing in mind that JOGMEC's focus in so many instances is really about resource security is as we continue to invest in developing our understanding about own resource and reserve, the life of the Mount Weld deposit, do we need additional sources of resource over and above that? So these are all matters which are on the table for discussion. But I think that the key point, Dylan, is a reaffirmation of commitment to the business, a reaffirmation of support to ensure that the Lynas business continues to grow and flourish.

[Operator]

Your next question comes from Matthew Chen from Foster Stockbroking.

[Matthew Chen, Equities Research Analyst]

Just to clarify -- well, done, thanks, on the quarterly. Just wanted to clarify a couple of things. I just wanted a bit of color on that strategy, the mineralized -- the production disruption on the 2 kilns this quarter. And so will that production for March look a little more like [ 1,350 ] that sort of number? Are you going to get a sort of a clear runway in January and February for a 500-tonne month and then have that shut down in March? Yes, if you could provide some color on that?

[Amanda M. Lacaze, CEO, MD & Executive Director]

Okay, so first thing is, how many days are there in February?

[Matthew Chen, Equities Research Analyst]

Yes, it's very short, isn't it?

[Amanda M. Lacaze, CEO, MD & Executive Director]

Yes, it is.

[Matthew Chen, Equities Research Analyst]

I know you're not going to hit 500 in a 28-day month.

[Amanda M. Lacaze, CEO, MD & Executive Director]

It will be difficult to hit 500 in a 28-day month because the actual tonnes are a function of the number of tonnes per day, as you would know. But notwithstanding that, we will be at a run rate equivalent to a normal 30- or 31-day month. In terms of the March alternate strategy, the production team is working on this. As I said, the regulatory shut is specifically related to the pressure [ with ] vessels. And so what we're -- what they're working on is doing this as an off-line shut, which is basically to bring in some other vessels to be able to continue to run, at least for some portion of what would be the shutdown period and take the pressure vessels off-line so that they can be inspected by the DOSH inspectors. So we're still in the early stages of planning that, but if we are able to execute according to the plan, then this should be a significantly improved month in terms of production. I'm not -- you won't be surprised that I'm not going to give you an absolute number, but certainly, we would see it as being significantly better than it was last quarter, although maybe not as good as it was the quarter before because there will still be some disruption as a consequent of the shut.

[Matthew Chen, Equities Research Analyst]

Okay. No, that's fine. And just to clarify a comment, you said the distribution of NdPr production on total REO is, from that last quarter, more likely going forward a better reflection of the -- of what's in the ore and something we should expect going forward?

[Amanda M. Lacaze, CEO, MD & Executive Director]

Yes. Look, I think we've always sort of said that, actually, in the ore when it's in the ground, it's around about -- I think it's about 23.5%, 24%. By the time it leaves Mount Weld, it's a bit higher than that because even in the concentrator, we preferentially recover NdPr, and then certainly over the last couple of years, we have absolutely preferentially recovered NdPr up to the stage where we've got NdPr tonnes up to 33% of our production. It should probably be sitting somewhere around about 26% or 27% of our production and -- but that will not be a function of producing less NdPr, it will be a function of actually recovering and producing more of the other material.

[Matthew Chen, Equities Research Analyst]

Yes. Okay. Great. And just on the Bosch contract, is that for all your products or specific ones?

[Amanda M. Lacaze, CEO, MD & Executive Director]

It's magnetic materials, it's NdPr.

[Matthew Chen, Equities Research Analyst]

Okay. Great. And I think if sort of prices were to stay where they are, you've got the AELB deposit in the back -- in the rear mirror and that was a bump on this quarter. You've got sort of $9 million to $10 million next year and the year after. Where prices are sort of going and where your production is going, you're going to sort of build cash, reduce debt or is there sort of thoughts about other ways to use the money? I mean, the CapEx for Lynas NEXT will be -- majority, is it done this quarter, last quarter, so there's probably not a whole lot more for the June quarter, let's say, $10 million. There's going to be a lot of cash left over, isn't there?

[Amanda M. Lacaze, CEO, MD & Executive Director]

So actually the Lynas NEXT, even though we had about $5 million of it thereabouts was in the last quarter, there's less -- there's a little bit less, Gaudenz is telling me. You'll recall but we said that the total Lynas NEXT is about $35 million. And so we will be using our cash this quarter and next quarter to fund -- primarily to fund the Lynas NEXT activities. We think -- and we will do a lot of the work in this quarter and next quarter, a lot of the heavy lifting will be done then, but it is -- but we certainly are not -- we're still fairly early in terms of the expenditure curve when you look at it on the $35 million spend.

[Operator]

We've got 5 further questions in queue, but your next question is from Tim Ainsworth from Talfain.

[Tim Ainsworth]

Probably a question for Pol and yourself. Just looking at the bigger picture with the ASP on Chinese magnet exports, we can see a trend line, quite clear line down all the way through 2016. From the start of 2017, the line reversed and it's headed up from mid 40s, around USD 45 a kilo, to October was USD 53.9 a kilo. Obviously, it's a reflection of the prices, but magnet values would be lagged, I imagine, by a number of months from the oxide values. The point is, it's quite a clear reversal. And I'm wondering just how sustainable that is, whether the Chinese will look to sort of hold those values with the impact of pulling up NdPr and metal prices behind the retailable sales values, if you like. Any comments on that following those end values on the NdFeB?

[Pol Le Roux, Vice President of Sales & Marketing]

Tim, Happy New Year. We discussed that together, I think, in the previous call, but basically all the export price, the magnet prices from China to the export market are related to published price for rares, published by Asian Metal, typically 2 months before shipment, which is the lead time for them to produce average. So there might be some -- there are some contracts that are different. Some people, magnet users, have developed different business models where they would fix a deal for magnets, for magnets to be made 6 months, sometimes more later, but especially last year, that led to big issues because the magnet makers hadn't secured the raw material a year before or 8 months before, and when it came to deliver the magnets in September, they came back to their buyers and saying, "I'm sorry, I have 2 options: either I go bankrupt by supplying you or I don't supply you; and the last option being, you accept the price to be adjusted." So generally speaking, it's very difficult to change this mechanism of simple -- simply relating the price of magnet to the price of NdPr 2 months before. Unless you have this kind of long-term contract that we developed now with end users, where the real supplier can secure much better stability of price over time. So you see you have price increase, then you should see a price decrease, I would assume, in February, March, you will see likely a magnet price decrease from China. And then you will see it increasing again, because the price went to its lowest in December, basically.

[Tim Ainsworth]

Okay. Sort of commenting on the demand price, at the same time, I understand what you're saying with the contract, but you've got demand pressure there at the same time, I'm just wondering whether you'll -- there will obviously be some sort of dip, but whether some of that increase will sort of hold, given the additional demand that's coming through there at the moment?

[Amanda M. Lacaze, CEO, MD & Executive Director]

Possibly. We -- our assessment in 2017 was that the market was probably pretty close to being balanced. So you won't get sort of an explicit shortfall, which would sort of support that happening. And bear in mind that in China, you've still got sort of pretty significant oversupply in the magnet production step of the chain. So there's quite a lot of relatively hungry companies in that area. I think the most important thing from what you're saying and from Pol's answer is that the magnet price is what the motor makers and the system producers actually see as the negative effect of the volatility in the raw material price. And so I go back to we would rather not have such a hard landing in sort of November, but it was a good reminder to some of the end users of the potential effects. And the fact that even if they had an agreement with the magnet producer, I think, almost all of the magnet producers walked away from their agreements. And so, therefore, finding a different mechanism to protect their cost base is really important.

[Tim Ainsworth]

Okay. Just the last one, the domestic demand on the magnets, is that matching the export demand, which has been 16% the last 2 years and again, 10% in 2017? Domestic demand couldn't be running at that sort of growth rates, I imagine.

[Pol Le Roux, Vice President of Sales & Marketing]

Yes, it's a lot more difficult thing to follow that. But yes, I would agree with you, we are in the same level of growth for the domestic market.

[Tim Ainsworth]

And sense of it growing, Pol?

[Pol Le Roux, Vice President of Sales & Marketing]

Well, definitely, China will be a -- I mean, it's better when you have 2 options: either you listen to each player or simply you go to the global pictures. China will grow faster than anyone else in electrical cars. It's really booming very fast these days. So I would assume that in the coming [ 3 ] years, Chinese magnet consumption will increase faster than anywhere else.

[Tim Ainsworth]

Certainly, their investment seems to be way in front of everybody else.

[Operator]

The next question is from the line of Tim Hannon from Newgate Capital.

[Tim Hannon]

Just a single question, Amanda, just on your pricing framework. I know you're vying to move away from the NdPr benchmark price and move to contracted price and understand as well that you can't give details at that specifically, but really interested in your framework for pricing. And the reason I'm sort of thinking about this is because cost is one thing but also the value that rare earths provide to electric vehicle magnets is considerable performance benefits, and just interested how you've work out how to price rare earths given those performance benefits and the fact that Lynas is the only ex China producer of size?

[Amanda M. Lacaze, CEO, MD & Executive Director]

Yes, that's quite an encompassing question. But I -- look, I guess that we need to take into account that we sell, as I said, at various stages in the supply chain. So we're selling to magnet makers, the sales team's task is to carefully balance, as I said, volume demands, and we would have -- we have -- one of the reasons why we're spending money on increased production is that we would have no problems placing significantly more than we produce today in the market, and to do that in a way which actually optimizes sort of the price at any given time. And so we do still get a small premium for our sales into Japan. So therefore, we do continue to prioritize sales into the Japanese market. Those contracts that we have where we -- that they're essentially volume contracts for the price formula associated with them, and those price formulas will relate back to the published price, but the benchmark price used in the formula varies on the various different contracts, so we sort of balance out sort of the impacts of any price movements, any movements in the published price. Of course, over time, it's sort of sales, but we are able to optimize within that. In terms of the longer-term contracts which are really much more about really getting a new or a different pricing model, we have, I guess, 2 major structures to those. We have the one option which is just straight up fixed price, which is something which is agreed, which takes into account, as any industrial pricing negotiation does, a combination of value in use, some recognition of cost plus dynamics, some recognition of sort of the competitive environment and then together, we actually settle on a price. And we have one fixed price contract on NdPr which is now nearly 5 years old with one particular customer, and during that period, there had been times when that customer has been paid significantly over, so the notional market price and then other times, where there've been playing below the market price, on balance, is has worked for both of us. So there's one which is a fixed price and there's a number of inputs to what ends up as really just a negotiated fixed price, including the fact that, clearly, we're not going to fix price at any sort of number that doesn't give us really a good sustainable return on that material. The second one, which a number of customers are very interested in is one which is a floor-ceiling price. And those -- the size of the gap between the floor and the ceiling determines really the level at which we set that. So if it's a large spread, then the lower price will tend to be lower -- relatively lower and the higher price relatively higher. If it's a smaller spread, then typically, the floor and the ceiling will be -- the floor will be higher and the ceiling will be a little bit lower. So really it's those 2 different sort of approaches which are core to what we're seeking to develop with our various customers. I guess, well, just the last thing on that, Tim, is, particularly when we're talking about sort of contracting at various stages through the supply chain, the other relevant piece to those contracts is that sometimes, they will be specific to a project with a specific automotive producer. So a car company, an OEM, will actually have a platform that they're seeking to develop and they will engage with their Tier 1 suppliers for supply of material across the platform of that. So sometimes we're contracting or we're seeking to contract with, say, a Tier 1 supplier for all their consumption across all of their different customers, and other times, we are effectively working as a partner to the Tier 1 supplier to be able to quote on a specific piece of business with an OEM. And of course, those 2 things relate in slightly different dynamics in the price negotiation.

[Operator]

Your next question is from the line of [ Robert Richardson]from [ ClearView Retirement ]. I'll just move to [ Jay Ellington ], a private investor.

[Unknown Attendee]

Anyway, I have a quick question for you. I just want to know what the status on the -- tax-free status in Malaysia is. If you just give a real quick summary in that, I'd appreciate it.

[Amanda M. Lacaze, CEO, MD & Executive Director]

I'll hand to Gaudenz to do that.

[Gaudenz Sturzenegger, Chief Financial Officer]

Yes, Jay, on the taxation issue, we have kind of our 12 years' tax-free basis which we entered in, I think, it was early '14. So we would -- we know it will run until the second -- so 2026, 2025, and that's kind of the position, where we are. I think the interesting point there is also -- we will exit out of this, as what we took in into this status, so whatever tax losses we have accrued up to the point, we will also be able to use it later on. So the effects will go beyond the period which is purely falling in this no tax frame.

[Operator]

The next question is from [ David McAusland ], he's a private investor.

[Unknown Shareholder]

I'm not that recent a shareholder. I got interested in it about a little over a year ago. Basically, I've got 3 areas, I'll let you choose which one you want to answer. My -- one of them concerns is, how are the relationship -- how is the relationship with the Chinese? It seems like maybe in that last price break, they were actually trying to cut off competition. And was that the case? I mean, are they okay with you being in the picture as a source of supply, okay? I mean, we've got to give credit to the Chinese. They've come a long way since 1990 or so and they haven't done it by appealing to the United Nations. But -- so that's one area. The other thing is the radioactivity situation in Malaysia. I mean, is it minor? Is that $50 million that you're paying, is it really a deposit? Are -- you're going to write it off, I would think, I don't think you're going to be getting it back. But I would -- kind of, I wonder whether we should characterize it as a deposit per se. But maybe it is. I'd like to know. And then the third question kind of goes along with the tongue-in-cheekness of the first one, and that is that our President here hires good quality women, so we need some help over here, but anyway, thanks for taking my call.

[Amanda M. Lacaze, CEO, MD & Executive Director]

I will say a couple of words, and then maybe I'll [ hand it across ]. The relationship with the Chinese rare earths industry, to your point, David, yes, their success in this area is a result of good planning and good execution. So it's not just, as I said, we will be, and as Australians, sometimes we get a bit frustrated, we get called the quarry and the farm of the world. We dig the stuff out of our ground, but we don't significantly value add to it. Others value add to it, and then, therefore, sort of bank the significant value. Whereas the Chinese said, "We do have rare earths deposits, we won't just be a quarry, we will develop an integrated industry right down to the component parts." And the Chinese policy continues on that basis. And so when you review Chinese government policy, there's always sort of some exploration of whether there will be a reduction in export quotas for lesser value-added materials and certainly, they attempt to make their policy settings such that they will be exporting more of motors and components, so more value add, and so not even exporting magnets, but really looking to export more value-added materials. Are they still trying to kill us? It's certainly not part of -- sort of articulated Chinese strategy, and our experience would be that the Chinese rare earths market is a relatively diverse and fragmented market in a lot of ways and so there are some in the Chinese market that thinks that it's a very good thing that Lynas is healthy and successful. There are still independent operators within China, both in terms of sort of magnet metal producing and components is having an alternate supply source to the state-owned enterprises is a good thing to their business, and there are others who probably do think life would be a bit easier if we'd just go away. But it's a balance. For us, it is important that we do participate in a positive way in the Chinese market, right? It is the largest market for rare earths materials in the world and we cannot be a successful and healthy rare earths producer if we don't have a way of participating in the Chinese market. Your second point with respect to the AELB deposit, it is indeed a deposit. And the previous monies placed on deposit were placed on deposit directly with the government. This $30 million that we have placed on deposit during the quarter has been by way of a cash back bond. So it is indeed a deposit and will be treated as such as far as our accounting procedures are concerned. Now with respect to will it be required to be used. So to put this in perspective, our waste, which has the low-level radioactivity, it sits at about 6 Becquerels per gram. The safe working limit, the permissible limit is 20 Becquerels per gram, background radiation and anything that we do is about 1 Becquerel per gram. The only time we've had an anomalous reading on any of our radioactivity meters that our workers who work in areas where there is radioactivity was the time that one of our guys actually forgot to take it off and got on an aeroplane. So he got a higher rating on radioactivity being on a plane than he did working in the workplace. So we have strategies which we are seeking to execute with respect to reuse of our waste materials here, particularly in the conversion of them into products which are soil conditioners and use to remediate -- we've got a test -- a trial running at present on remediation of sites which were used for bauxite mining here in Pahang. So we have a number of different strategies associated with it, but in any mining or processing operation, you typically do have some form of remediation fund. We made payments into remediation fund, for example, in Western Australia and we also carry a liability on our balance sheet related to remediation of our site -- our mine site in Western Australia. So it's real it will continue to be carried on the balance sheet, but it is really, truly cash which has not disappeared into consolidated revenue. And sort of my going in view on this is that mostly, I would rather -- the money under our control than any government control because I'm not sure how much I trust those governments with my money. But anyway, that's being a little flippant. And I'm not sure that I would enjoy working for your commander-in-chief.

[Operator]

The final question we have in queue is from [ William Wilkins ], who is a private investor.

[Unknown Attendee]

Just had a question about the share consolidation. I see it's been executed satisfactorily, but have there been any tangible benefits flowing from that consolidation? And if not, do you anticipate any?

[Amanda M. Lacaze, CEO, MD & Executive Director]

Okay. I'll just hand that over to Andrew, who is our Company Secretary.

[Andrew Arnold, General Counsel & Company Secretary]

Yes, thanks for that question, [ William ]. You're quite right, the share consolidation was approved by shareholders at the AGM on 28th November and it has been completed satisfactorily. Now, why did we undertake the share consolidation? Well, as we mentioned at the AGM, particularly for certain long funds from overseas, they look at an investable company as a company of substance, typically a company with the share price in the range $2 to $3. We were, pre-consolidation, $0.20. So it was part of presenting the best face of the company to international investment market. Now we recognize also we had a lot of shares on issue, and so our share capital now is more consistent with that of our peers. So really, the consolidation was completed for those 2 purposes and as you mentioned, it has been completed satisfactorily.

[Unknown Attendee]

Yes, so I understood all that logic and all that. The question was, is there a tangible benefit that has been noticed because I haven't sort of seen it reflected in the share price? And so -- yes, so all good stuff, but where do we expect to see the benefit in terms of the share price?

[Andrew Arnold, General Counsel & Company Secretary]

Sure. I mean, as I mentioned, it was conducted primarily for the 2 reasons that I mentioned. I think in the longer term, it will certainly be a benefit to the company as it will [indiscernible] the company as a company of substance and with the share capital structure that is reflective of our peers. So really, so if you're looking for an immediate benefit, it's tied up those 2 issues, and I think that will be a benefit over time.

[Amanda M. Lacaze, CEO, MD & Executive Director]

And [ William ], I guess the other thing is, our objective is ultimately to have a less fragmented register and that is really sort of the key benefit to this. [indiscernible] I think had something like 35,000 retail shareholders, so it'd be significantly reduce that. And now in our top 20 shareholders, almost all of them are institutions, which puts us in quite a different spot in terms of reducing volatility in the share price, which, I think, ultimately is a good thing for all shareholders.

[Operator]

Thank you, Amanda. We've got no further questions in queue, so I'll hand back to you for any closing or additional remarks.

[Amanda M. Lacaze, CEO, MD & Executive Director]

Once again, I'd just like to thank everyone, particularly those who might be sitting up late at night to join us, and I look forward to being able to talk to you again in 3 months' time. So thanks very much. Bye.