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Lynas Rare Earths Ltd
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Thank you all for standing by, and welcome to the Lynas Rare Earth quarter results briefing. [Operator Instructions] Please be advised that this call is being recorded today. And I'd now like to hand the conference over to Lynas Rare Earth. Thank you. Please go ahead.
Good morning, and welcome to the Lynas Rare Earth briefing for the December 2021 quarter. The briefing will be presented by Amanda Lacaze, CEO and Managing Director. And joining Amanda on the call today are Gaudenz Sturzenegger, CFO; Pol Le Roux, VP, Downstream; Daniel Havas, VP, Strategy and Investor Relations; and Sarah Leonard, General Counsel. I'll now hand over to Amanda. Please go ahead, Amanda.
Thanks, Jen. Well, good morning, everybody, and Happy New Year. I'm so pleased. I know how many phone lines there are, the people who have called in. So I know that the interest in our company continues to be high. And so I'd really like to thank you for joining in the call today. Let's hope that this is a year when we are able all to return somewhat to normal or at least where we have a more normalized approach to COVID and some of its effects on our businesses and our lives. We're looking forward to a very busy year at Lynas. Unlike all those others when we had such a gentle time. No, every year is a busy year for us, but I guess that the year ahead for us is particularly exciting because we are now firmly focused on growth activities and ensuring that our business is able to grow with the market at what appears to be an accelerating pace. But today is primarily about our quarter 2 results. I'm assuming most people on the call will have read those. And certainly, it's a delight to be presenting them. You will have also heard that on the call today, we have Pol Le Roux joining us, as well as Daniel and Sarah. Pol has actually been shouldering the load of leading the firm for the last month or so whilst I've had a little bit of time off, and so I'm pleased he's here and will be able to answer any questions that you might have about the market or indeed about some of our operating performance through the quarter. So in the quarter, externally, the market continued to be very kind. Demand is strong across all segments in the market. Our Japanese customers' demand is growing at rates that we had not forecast to kick in quite so aggressively in quite so early. But as well as that, certainly, for us, inbound inquiry for our material from other consumers, magnet buyers, in particular, outside of China is very strong. And that, of course, is translating to really very strong prices as we've indicated in the report in November, the price for NdPr crossed the USD 100 a kilo, which is a bit of a sort of a benchmark. It's not been there since 2011. And it's certainly a great price for us to be selling our material. Internally, as always, I'm always much more proud of the way that our people have been able to meet some of the challenges of the market. And despite continuing challenges from the pandemic. And that's both with respect to workforce and also to logistics effect. Our production increased again to around the mid 1,300 tonnes of NdPr. And I have to say the plant in Malaysia is running better than it ever has. And so we continue to improve our ability to deal with some of the challenges. In Malaysia, many of you will recall, in the first quarter, we were looking at really high case rates in Malaysia, which translated to us really having a lot of people who were either isolating or unable to attend the workplace. Now the case numbers in Malaysia have significantly reduced, but we've retained a number of our protective mechanisms as we manage this as an endemic rather than a pandemic in that environment. And of course, in Western Australia, as we look towards the opening of the borders on -- in early February, we, right now, are progressively implementing many of the strategies that have served us very well in our Malaysian workforce. But -- so we continue to have some effects on our workforce in Malaysia because there's still quite significant rates of infection in the workplace -- in the community. In December, we had, I think, some of the most severe floods that we've seen in Malaysia since certainly, I think the first year that I was there in 2014, we had a very big monsoon and widespread flooding, and that was quite significant this year. And I was just sort of going through some of the stats from that this morning, and we had about 30 of our families who were actually flooded and probably twice that number that required us to provide specific assistance sort of through that period. And we do -- every year, we put buses on to help to bring people, to transport people from areas where they may have been sort of flooded or otherwise, so that they can continue to work. So quite a lot of sort of challenges domestically as well as, of course, international logistics. I mean I don't have to write a book on this. I mean there's an awful lot being written about the challenges of international logistics, but we're getting better at managing that as well. And so we're now complementing the rather less predictable sort of commercial shipping with charter shipments of concentrate from Fremantle up to Malaysia. And that certainly has provided us with better stability and the ability to continue to operate the plant at the rates that we choose. So all of these things have seen us with really a great revenue outcome and accompanying excellent margins. And our customers have confirmed to us not just qualitatively, but quantitatively with confirmed purchase orders. Their expectation that the demand will continue to grow strongly as we move into the 2022 calendar year. So as I said at the beginning, our focus really is about delivering on our growth projects. We've given you a bit of an update. I know that people still think that we -- there's risk for delivery of the Kalgoorlie project. Hopefully, the sort of information that we are providing you, you can see that it's progressing well. It's quite exciting. I got to go to Kalgoorlie in November. And it's terrific to see the sign as it was then and it's accelerated since then. We've included some photos in the quarterly report showing the kiln actually coming up to Kalgoorlie, which is quite spectacular. And I'm hoping that I will have the opportunity to be there to see it being lifted into place. So you can see the progress, which is there. Of course, we've also disclosed that the EPA has recommended the project for approval and now we're mainly -- we're just awaiting the ministerial determination on that. In Malaysia, likewise, we've received the EIA approval for the PDF. And we are working with our partner there to ensure that not only do we commence construction on time and in alignment with our license conditions, but actually, that we work as quickly as we can together to complete the project and to ensure that this particular issue is properly managed and safely managed as always for our people, our communities and the environment. And of course, all of these increase in production ultimately has to come from Mt Weld. I've included some photos also of some of what we're doing in Mt Weld at present. We are continuing to invest in Mt Weld, but we expect to accelerate that investment as we move forward to ensure that it can continue to feed our growing business. So all in all, it's an excellent result. The team has really done an amazing job within -- in terms of dealing with some of the -- some of the challenges that we have, but we feel that we're now in the best place that we could be as we look to growth continuing through this year, which is sort of what our customers are indicating to us. And we're all sort of set to ensure that we can deliver on not just today's business, but also deliver the actions and the activities and the projects that we're going to make as even more successful in the future. So with those as a few opening remarks, I'm happy to take any questions. Also happy if when you ask them, if you want to direct them to Pol and please feel comfortable to do so.
[Operator Instructions] Our first question comes from Hayden Bairstow at Macquarie.
Just a couple of questions for me. Firstly, just on the CapEx. Just keen to understand when that starts to really kick up for -- to finish off the Kalgoorlie plant. It's still a relatively low number given the ultimate budget that you're going to spend there. It just keen to sort of understand is that the next 6 months that really starts to move higher? Or is it pretty even at this rate for an extended period of time? And then just on the market, I mean, I certainly seen a few headlines around some vehicles trying to look at removing or reducing rare earth in some models. I mean where are you seeing things from that perspective just given obviously you've had huge EV sales and demand is strong across the board, but just keen to see we understand if you guys are seeing anything on a similar frame that some models are going to try and reduce rare earth exposure just given the cost of the rare earth magnets.
Okay. Thanks. Gosh, one of the things, Hayden, that I was thinking was, well, they won't wonder why we're not spending any money this quarter because I thought we'd spent quite a lot of money this quarter. So I can confirm that we have now placed purchase orders for all of our long lead time equipment, which is required on site that we're -- and so that means that we've got commitments for a sizable proportion of our overall budget. And the next, I guess, big, big step is going to be with some of the civil works, which will accelerate significantly once we receive the ministerial determination and associated approvals. So yes, we've got a bigger forecast this quarter than last quarter, but it's pretty substantive payment for CapEx and that did include some costs associated with the mining campaign at nearly $40 million for the quarter, but it will be higher than that in the quarter ahead of us. Now with respect to the market and thinking about motors, this is something I'll ask Pol to comment on as well. But I would say as sort of an opening comment, there have been people talking about finding alternates to rare earth permanent magnet motors for electric vehicles for sort of many years. And there are alternatives that have always been alternatives that work as well. But I'll pass over to Pol to say a few more words on that. Pol?
Yes. Good morning, everyone, or good evening. No, actually, this talks about moving away from rares is not present in the business at the moment. As you know well, the permanent magnet motors allow you to save a lot on your battery costs and the battery cost is more serious than ever. So I would say, market-wise, there were very big changes and the main change that purchasing people work on securing supply for their companies, not on saving $0.50 per car. And that reflects on our work, for myself, my left side, the works and sales; the right in production. So half of me is on vacation, and the other is working 300%. So I'm still a bit over busy, but there is absolutely no question on the demand. It's really strong.
Our next question comes from Jack Gabb at Bank of America.
A couple from me. I guess first one is you said demand is accelerating and certainly looks like that. I'm just curious, are you able to meet this demand growth this year? Or are you holding your plant to 75% capacity?
So Jack, we're doing everything we can to be able to continue to grow production rates. And that's really why I spend a bit at the time talking about our ability to manage some of the challenges around COVID. That was the only reason why we were holding it. Yes. That was I should say that was that sort of the originating reason why we sort of shaped this view and have been really aiming to get to that 75% because we knew during sort of some of the more severe stages of the pandemic that we just could not safely go beyond that. Today, we have some, as I said, doing things like chartering ships to be able to manage our way through some of the logistics. There is cost associated with that, but it's way outweighed by our ability to increase production. And so we are aiming to produce in excess of 75% of Lynas' next rates. But if there's one thing that we've learned over the last 2 years, it's not to overstate our ability to sort of dial things up because there seems to be, and I think everybody in the world is seeing the pandemic seems to find a different way to come at you from a different direction. But certainly, our objective is to increase production will be on the 75%.
Perfect. And next one is just on Kalgoorlie. If we go back to the original early works approval and the disturbance area that they actually got a picture of in that approval. It looks like, based on your pictures, you've gone well beyond the disturbance there within that picture in terms of the tanks and whatnot. I'm just curious, has that early works approval changed slightly? And I guess, more broadly, sort of what percentage of the project is complete thus far?
Jack, we will never breach an approval of that sort. The risk reward is certainly not sufficient to make it worthwhile. The early works approval conditions are quite clear. It allows for a certain amount of land to be cleared and it allows us to do a certain amount of work, which if the final approval doesn't come through, can be remediated. And so even when we look at those tanks that are sitting there on site, that's not where those tanks will end up, right? So we've brought them on site because they've been fabricated and they're useful for us. We've got things like water in them at present, which is used as -- which we can use as part of the current process, but they're not sort of in their final location. So the work that we have done is absolutely in compliance with the early works approval. And there's a couple of things that, gee, we would have liked it if we've been able to get a little bit of a relaxation around that approval, but we've really focused more on getting the major approvals through rather than sort of seeking variation for what was a very clear indication from the EPA in terms of those early works. So there has been no change, and we have not changed in any way the conditions associated with that approval.
Okay. That's helpful. And then, just to clarify then, so are you sort of more than 20% of the project done at this point? Or is it a lot less?
Look, it's a bit hard to answer that. We're not talking about this sort of a direct line here. There are some things that we've been able to do in a different order from the way that we might do them sort of otherwise. So I can't really give you a number on that. But I can tell you that as we look at our time line to completion that we retain our beliefs that we will bring the project in on time and on budget despite the fact that everyone likes to write analysis that says that we won't.
Not me. But I take your point, okay. And then last one is, I just noted your comments around you being off a little bit and bringing Pol in, which is great. Should we read anything in this about potentially you stepping down? Or is this just a one-off?
No, I just wanted to have a holiday for goodness' sake, it's Christmas. [indiscernible] so my daughter is in Sweden. I hadn't seen her for 2 years. She got married. I had to watch it on a bloody video. And the minute that we had quarantine-free travel, I thought, you beauty, I'm on a plane. You shouldn't read anything into it.
Our next question comes from David Deckelbaum at Cowen.
Congratulations on the wedding and the good news there, glad you got some time off. Well deserved. I have 2 questions. One, the commentary around demand and customers emphasizing short of supply. Do you see this material shifting that you sell product in the coming years? And the complexion changing rapidly that you would be contract with actual magnet buyers versus magnet makers?
Yes. David, we actually think about our customer base as both -- as at least those 2 segments, at least in the magnet segment, we do have magnet makers and magnet buyers, and we do have contracts with both magnet makers and magnet buyers today. And we certainly have quite a lot of inbound inquiry from magnet buyers who are seeing demand increasing. And as Pol mentioned before, very focused on security of supply and a lot less on, for example, price because for them, they're really looking to make sure that they can continue to grow with their market as well. But we have maybe I would think it's somewhere around about 15% of our business is contracted with magnet buyers.
Certainly, I think it's illustrative that as that segment expands. It would intuit that your margins would expand as well. The second question for me is just with the Lynas 2025 vision, you talked about the exploration campaign investments at Mt Weld. If we were to think about theoretically running the LAMP facility at 100% of nameplate capacity, is Mt Weld capable of generating enough feedstock to go right now? Or would that have to be a multiyear investment process?
Mt Weld can feed at 100% of Lynas next rates in Malaysia. Our objective is to be able to grow, as we talked about Lynas 2025 originally by at least 50% by 2025. We originally set that target in 2019 based upon some forecast growth rates, which the market is currently outstripping those. So our core focus, and we will bring back sort of information to the market at the right time. Our core focus at present is to find ways to continue to accelerate that. So when we think about Mt Weld, what we do know is that we have sufficient material in the ground, but we will need to continue to invest in our Mt Weld operations. It's worth noting that the Mt Weld, the regional construction of the Mt Weld facility now is a decade ago. And so continuing to invest in that and also continuing to invest in sort of our exploration program there is going to be an important part of feeding our growth aspirations.
Our next question comes from Daniel Morgan at Barrenjoey.
First question is there's been a little bit of an inventory build in the around -- sales around 10% lower than production, and that's been the last 2 quarters. Is this the case across all products? And specifically, NdPr or is it lanthanum or cerium? I'm just trying to work out, has there been an inventory build in NdPr in your business?
No. I can answer that with one word. No, there is no buildup of NdPr inventory. Instead of sort of across different quarters, I think that we finished last quarter with -- sorry, the first quarter was a bit more inventory than the second quarter, wasn't much sitting in the warehouses at the end -- in the warehouse at the end of the second quarter. What we came to -- what we're seeing is that inventory is in the non-NdPr materials. And even there, it's not a -- we're not seeing it as sort of even a medium-term issue. We did have a number of La and Ce shipments, which were delayed at the end of last quarter for all the reasons that we've talked about previously with respect to global logistics and shipping availability.
Okay. And the -- one of the new news in this release is that you're chartering vessels to shore up your logistics channel, which makes sense. I'm just trying to get an understanding of did this happen towards the end of the quarter? Or was it early? Just trying to work out, are you getting the benefits of this change yet? Or does it come in this quarter and beyond?
We will continue to use charter our vessels to complement commercial shipping. Our first charter shipment wasn't until December, and it has its own challenges. We actually have to find ships available to charter. But at one stage, where we were looking at really sort of challenging number of containers sitting either in ships or in sort of transshipment ports. It presented itself as the only logical solution. And we think that it continues to be a logical solution moving forward. It's certainly underpinned better performance in December than we've seen in November or October.
Okay. And on the Kalgoorlie project, what is the critical path to getting this done on time and budget? Is it ministerial approval? Or what -- is it delivery of long lead items? What do you need to see happen to meet the timing and budget?
So as with any project, your critical path will move around at different times. It's like running a factory. Your bottleneck moves around, you fix one and then it moved to somewhere else. At present, we don't have anything on sort of, I guess, anything which is taking us into sort of critical risk territory on delivery of the project. But certainly, finalizing the approvals is very high on our list, and we will be able to execute very quickly once we finalize our approvals because we've used the time that it's taken to get some of those things through wisely and ensure that we actually have equipment either on site or in our Kalgoorlie facility. And we've got our engineering sort of well prepared. So I think we still got those pretty much all the things properly aligned. But -- and we continue to have some buffer in the performance. So finalizing the approvals right now is a very high priority for us. As I said, we've placed out -- we've done the tenders, we've placed the orders for 100% of the long lead time items. Our engineering is really well progressed. It's really about getting those so that we can take the next step in terms of some of our civil and earthworks.
And with regards to the approval process, the EPA issued its assessment report on the 20th of October. It's now almost 3 months later, we've done a ministerial approval. Is there any expectation? Or why is that taking so long for something that should be a priority, I would think, for the start.
No. Look, where we're at, the EPA approval came through. There's always room for appeals, part of a statutory process. There were 2 protests lodged which have been dealt with, the appeals convenor has provided a report. And now we're waiting on sort of finalization of the ministerial determination. Okay. I guess what I'm saying is that it's all in line with sort of statutory time lines. There's nothing extraordinary in the timing and the time line associated with getting the approval through.
Our next question comes from Trent Allen at CLSA.
Well done on a good result. I'm just -- someone -- people have been asking about the potential to increase production and someone referenced throughput at the LAMP. Now it's running at 75-odd percent at the moment, can it run at 100% if we're looking through COVID into the future? I think your best quarter was back in -- was it in 2018, you did 526 tonnes of NdPr compared to 600, which is at nameplate. Also the impediment around nameplate of course, has been your license conditions. I've always felt that part of that was the lack of a storage facility for your WLP, but now that you've got an environmental approval for the PDF, does that open the door to change the conditions so that you can run at 100%? Also, what's the timing on construction of the PDF?
Yes. Okay. The -- yes, we can run the plant in terms of the plant itself operating, we can run out our line as next rate. We're quite confident about that. The second point, which is about the constraints on processing and the -- we've not tested those in the last 2 years, of course, because we've had all sorts of other constraints, but we continue to work with the DoE on those. And yes, like you're saying, we would be hopeful that we will find a path through to releasing those constraints. And your associated point on getting the PDF in place and really having that dealt with. I think that you're right. I think demonstrating that the PDF can be constructed and managed safely, certainly takes away a lot of the other sort of issues which may be raised at one stage or another. So as you would recall, our license condition requires the construction has commenced prior to the 2nd of March with the EIA approval and various other associated approvals, which need to be received. We feel that we are on a pathway to being able to meet that requirement.
Cool. Can you just remind me what the -- what -- so where do you guys bump your head at the moment? Is it around 85% of the LAMP -- of nameplate? Or is it 82%? Just if you could run it as quickly as you wanted to and still stay within your license because in the past, of course, you had the slowdown in the second half, so as not to breach the condition. What's -- how should we think about that? What's the rough number?
Yes. I don't know that I can be as precise as 85% or 82%. It's around about that number. Yes.
0.5.
Sorry. 85.5?
0.5 or 0.6, I don't know exactly.
Okay. I'm just getting 80 now.
Yes. I think we could refer that. But I think for order of magnitude, that sort of number gives you the right number.
Our next question comes from Reg Spencer at Canaccord.
I'm sorry if someone else has asked this question, but I have had some phone issues this morning. If I could start with the chartered transport ships. Is that likely to be a permanent measure for the foreseeable future given global logistics issues? Or in your mind, it really is only temporary until such time as these logistics issues abate?
So Reg, we thought that the logistics issues might abate. I know 12 months ago, and then we thought that might abate about 6 months ago. And guess what, they just have continued to challenge us. And I think you will have read in the report that shipping days from Fremantle to Kuantan had increased in the year just past from sort of March through to the end of the year. So we are not seeing this as a temporary stock gap. We're seeing it forming part of our logistics solution because we don't think that global logistics challenges, again, is sort of just resolve themselves anytime soon.
So I guess, modeling costs, we should think about some higher transport costs for the foreseeable future such time as these issues abate. That makes sense. Amanda, you guys will be well aware that the border to Western Australia is opening in February. There is an expectation that there is going to be some disruption as COVID hits Western Australia. Have you got any fat built into your time line on any potential impact from that? Just curious on what that might mean for time lines and so on and so forth because we are hearing other companies and other projects are quite concerned about the potential disruption from that.
Yes. I think that we're in a really good position compared to some of the other companies because we've already dealt with sort of managing the effects of pandemic for an extended period of time in Malaysia. So it's not like I understand with some of the other companies, particularly in WA, they just really haven't had the experience of how to do this, but we have. And so we have a proven model, which has worked for us in Malaysia, where we -- yes, we have had some of our people with COVID, but it's not been acquired in the workplace. We've had a very careful management approach to ensuring that we don't have workplace transmission and that we do properly track and trace within our own workforce, and we don't expose people to the risk of getting sick at work. And so we're going to take that model and we're going to drop it into place in WA, and we have every expectation that have worked well for us in WA as well. But our Western Australian team is all over this right now. But for us, the really good thing is our Western Australian team is all over it with our Malaysian team holding their hands and able to give them the benefit of our prior experience.
Understood. Maybe one for Pol, if I can. Pol, you're obviously aware of the consolidation of some of the Chinese SOEs in the rare earth industry. Do you expect this to have any impact on exports to the rest of the world or market pricing? Or I'm just kind of curious because one might think that the impact of consolidating those Chinese companies could go either way. So I'm just curious as to your thoughts as to what that might mean for supply material into the market.
I think if you just look at the history, back 15 years ago, we had a lot of very fragmented supply chain in China. So major buyers from the west, buying rares from a multitude of suppliers in the -- in China and the prices were very low, so that is consolidated. We see the impact on price. So further consolidation is probably something good for the market.
Understood. And just lastly, Myanmar, I see that the border with Southern China is expected to reopen in the not-too-distant future. Given that, that material is more ionic clays and more heavies, do you see that having a marked impact on your DyTb pricing? Or given the demand in the market that, that should be more than soaked up?
As you know, in terms of demand, the Dy-terbium demand grows faster than the NdPr one, simply because the power of motors increased or temperature increase even more. And when you look at the overall supply of heavies, so ionic clay from South China plus Myanmar. Actually, it's not growing so fast, including a full-speed Myanmar. So the situation, supply-demand situation in Dy terbium is expected to remain at least as tight as today. So it remains a very valuable product for us. And we are very fortunate that our -- or actually compared to usual light rares contains quite high Dy-terbium content. So that's a very important product for us.
Yes. And there's not an insignificant amount of NdPr that comes out of that Myanmar production. So a similar question, I suppose, you're not expected to see any increase in supply to have a material impact on price. Okay.
We have no further questions at this time, but just a final call before we wrap up. [Operator Instructions] Amanda, there appears to be no further questions. So I'll hand back to you for closing comments.
Excellent. Thank you. Well, once again, thank you, everybody, for joining us. And actually, I look forward to [indiscernible] up with you, some of you face to face when we do our half yearly results at the end of February.
Thank you. This does conclude the call today. Thank you all for joining. You may now disconnect.