Lynas Rare Earths Ltd

ASX:LYC

Earnings Call Analysis

Productive Quarter with Strategic Progress

The past quarter marked a productive period with license conditions at the Malaysian facility eased, promising operation continuity through March 2026. Investments in Malaysian and Australian facilities are setting the stage for capacity growth, allowing for enhanced production of NdPr. Although the financial year is an adjustment phase with higher initial costs due to start-up operations in Kalgoorlie, the company aims to maintain production costs within the current range over the next 2-3 years. Further efficiencies are sought in existing operations to prevent significant cost increases despite adding a new site.

Recent License Variation and Investments Bolstering Company Growth

The company's recent quarter was very productive, marked by significant developments at the Malaysian facility. After facing stringent management conditions, the company welcomed a license variation that removed these hurdles, allowing for full operation until March 2, 2026. This shift instilled the confidence needed to make planned investments, which include reconfiguring the solvent extraction flow sheet and enhancing product finishing capabilities. These improvements aim to expand the facility's downstream capacity to 10,500 tonnes per annum of NdPr. Additionally, downtime for these enhancements provided an opportunity to conduct maintenance and operational improvements across other areas, boosting overall operational efficiency without any safety incidents. Despite a market characterized by cyclical pricing, maintaining a low-cost position remains a cornerstone of the company's strategy.

Fiscal Adjustment Year and Ongoing Cost Management

The current financial year is an adjustment period for the company, influenced by a prolonged shutdown and operational changes at Kalgoorlie, including utilizing trucked gas versus piped gas due to pipeline issues. The company anticipates cost penalties within this adaptation phase and acknowledges that adding a third operational site will necessitate finding further efficiencies in existing operations. The target is to maintain production costs steady despite these additional expenses, committing to continued low-cost leadership critical for long-term success.

Cost Reductions and Normalization Expectations for Upcoming Quarter

Looking to the upcoming quarter, the company expects a more normalized performance with the added benefit of cost reductions carried over from the previous quarter's shutdown. This is attributed to the natural delay in cash costs as they lag behind production. Introductions such as the Kalgoorlie facility are set to inflate costs during its initial phase; however, the commitment to optimizing operations post-stabilization is evident.

Outlook: Pursuing New Ventures and Anticipating an Exciting 2024

As the company navigates the evolving rare earth industry, it continues to explore Malaysia's ionic clay deposits, which are progressively developing under the Malaysian government's focus on the rare earth sector. Projects like these, along with enhancing the production of heavy rare earth elements, signify the company's efforts to diversify and solidify its supply chain. With these developments, along with mounting confidence in the facility expansions and operational optimizations, the company anticipates a robust and exciting 2024 calendar year.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to Lynas Quarterly Results Briefing Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference will be recorded.

I will now like to hand the conference over to Lynas. Please go ahead.

[Jennifer Parker, executive]

Good morning, and welcome to the Lynas Rare Earths investor briefing for the quarter ending 31 December, 2023. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director; and joining Amanda, Gaudenz Sturzenegger, CFO; Pol Le Roux, COO; Daniel Havas, VP, Strategy and Investor Relations; and Sarah Leonard, General Counsel and Company Secretary.

I'll now hand over to Amanda. Please go ahead, Amanda.

[Amanda Lacaze, executive]

Thanks, Jenn. Good morning, everybody. For those of you who are on the East Coast of Australia or indeed, even the West Coast within the top half, I hope that you're staying healthy during this incredible heat wave that we've got just at present. For those of you who are in cooler climate, I trust you're enjoying it.

The quarter, which has just passed has been a very productive one for our business. About midway through the quarter, we received the very welcome news that our Malaysian license has been varied so that the conditions, which were quite difficult for us with respect to management of our facility in Malaysia have now been removed and we are able to continue to operate all areas of our Malaysian facility through the duration of the current license, which takes us through to the 2nd of March 2026.

As part of this license variation, there's only been one further variation from us, which is to dedicate 1% of our gross sales revenue to research aimed at developing a residue, which is less than 1 Becquerel per gram of radioactivity. That process, that research process, which is being conducted under the supervision of the Malaysian AELB, but in partnership with a number of different tertiary institutions, both in Malaysia and also using some of our relationships in Australia is already scoped and in progress. Of course, by getting this variation in the license conditions it gave us confidence to make some of the investments that we have been planning to make in our Malaysian facility, including those which see us reconfigure our flow sheet in solvent extraction and make further investments in product finishing, which will allow us to increase our downstream capacity in Malaysia to approximately 10,500 tonnes per annum of NdPr.

In addition, during the quarter, during the period that we were shut down to complete those works, we also undertook significant works in our cracking and leaching and [ OUR ] areas, both on ongoing maintenance, but also some enhancements in operations given that we now have extended operation at those facilities. This was, indeed, as you would have seen in the report, the largest most significant works that we've undertaken our [ NAMA nation ] processing facilities with the construction of the plant. We had 600 subcontractors mobilized on site. And we're very pleased to say that all plant modifications were complete without any injuries.

So at the same time, during the quarter, we were delighted that we had -- we were able to announce feed on in Kalgoorlie in early December. That certainly takes the pressure off some of the issues with respect to the change in the line just to take some of the pressure off in terms of the speed of the ramp-up in Kalgoorlie and also has given us the opportunity to de-mobilize some of these subcontractors on site, which has a beneficial cost impact. And then at Mount Weld, we were delighted because we received the Ministerial Statement, which reflects basically, supported the Mount Weld expansion project by the Western Australian EPA and made some great progress with our early works. And separately from the quarterly report, we've also announced some of the results that we've had from the carbonatite exploration program, which we have been conducting over the past 18 months or thereabouts. And these are highly prospective for the future resource development at Mount Weld.

So really, the quarter has been very focused on ensuring that we are setting up our operations, progressing our various projects to ensure that we are both able to support capacity growth as the market grows, but also that we are undertaking efficiency initiatives to ensure that we can preserve and indeed in some instances, improve our cost position because in a market, which I'll talk about shortly, which is cyclical in nature in terms of pricing, it is important that we retain a low-cost and competitive cost position in the market.

So, let me turn a little then to sales and also the market. And I would point out that despite our being shut down for 50% of the quarter, 6 weeks out of the 12, we had some very good production rate. Production during that quarter was absolutely in line with our target 7,000 tonnes per annum. And our sales notwithstanding the very low pricing environment, we're also at a respectable level, which reflects the fact that we were able to sell down some of the safety stock that we have been holding just in case, I guess that's what safety stock means, is just in case we had not achieved the outcome on the Malaysian mines that we did.

Of course, everybody who is even a casual observer of the rare earth market, and generally, the critical minerals market, a number of the other notch and all minerals in the market would know that the market is not helping us at present. And yes, I'm sure you've heard that from many other producers as they've been releasing their quarterly results. It really is all about the subdued environment in China. Generally speaking, across our various markets, we continue to see automotive is pretty strong. Japanese customer demand remains resilient, but really inside China, particularly when it comes to those areas which are associated with the real estate market, we are seeing very soft demand, which is translating to conservatism in terms of inventory holdings and sales in the rare earth market. And so the price is back at sort of pre-COVID levels.

We see this as being part of normal sort of cyclical events within the market. And as I said, our objective is to ensure that we have our operations operating safely and in a cost-effective way to ensure that we are able to continue to compete and be well placed for the market upturn when it happens. And I'm sure many of you who have been investors in Lynas for many years would know that this was exactly what we were saying in about 2020. And so we saw the benefits of being in that strong position when the market really picked up in 2021-2022. So generally speaking, I think we're all fairly pleased with the progress that we have made during the quarter and pleased also with the ways that we have been able to manage the business through this time and through sort of having an extended shutdown and we look forward to this calendar year continuing to be an exciting one as we continue to develop each of those projects further.

So with those as sort of opening remarks, I am, as always, happy to take questions.

[Operator]

Thank you. We will now conduct the question-and-answer session. [Operator Instructions] Our first question comes from Chen Jiang from Bank of America.

[Chen Jiang, analyst]

Amanda, can you hear me?

[Amanda Lacaze, executive]

Yes, Chen.

[Chen Jiang, analyst]

Amanda, a couple from me, please. So, congratulations on the NdPr production despite the shutdown -- sorry, the temporary maintenance work. I'm just wondering NdPr capacity, you mentioned in the quarterly 10,500 tonnes by the end of December '24. So that's end of first half FY '25. Could you please remind us the plan after the 10,500 tonnes to achieve 12,000 tonnes. Previously, you mentioned core Lynas growth plan 2025. So, would you please remind us if the Lynas 2025 growth plan still intact and in the plan after that?

[Amanda Lacaze, executive]

Sure. Well, actually, you would recall the original Lynas 2025 growth plan was to get to 10,500 tonnes per annum. In addition to that, we have plans to construct the separation facility in the U.S., which is about [ 13,000 ] tonnes per annum. So that really takes us up to sort of that 12,000. We've got the opportunities to do some further optimization works in Malaysia as well. But essentially, it will be a combination of the Malaysian facility with the U.S. facility is going to get us to the 12,000, which is the capacity that we're installing at Mount Weld. And now with the 2 cracking and leaching facilities in Kalgoorlie and in Malaysia, clearly, we have sufficient cracking and leaching capacity to be able to feed that downstream activity.

[Chen Jiang, analyst]

That's very clear. Maybe a question on Kalgoorlie, please. So, Kalgoorlie will start to face the mixed rare earth covenant to your Malaysian plant from the March quarter. If you could give us any color on the cost as an average for Lynas growth. I know it's very hard for us to -- well, your cash cost will increase, including Kalgoorlie, but if you can give us any -- how should we think of your cash cost including Kalgoorlie in the next 3 years?

[Amanda Lacaze, executive]

So certainly, in this financial year, we have always been very clear that it is sort of an adjustment year. We've got -- we've had this effect of the sort of long shutdown. There's a number of initiatives that we've had to take that we've chosen to take in Kalgoorlie to facilitate sort of the start-up there, including using truck gas rather than piped gas because of various issues around the gas pipeline. We also will wear some cost penalties in the early stages as we're adjusting and particularly operations there, reagents, we've got more people on site to ensure that we're getting the commissioning and ramp-up process right.

So, as we move through over the next 2 to 3 years, our target, right, and I understand that this is a challenging target is to keep our cost of production within the same sort of ranges we have it now. Now, will we be able to do that? It means that we're going to have to look at efficiency because by definition, yes, you're right, adding a third site it's going to add further costs. So, we need to look for further efficiencies in both our Mount Weld and our Malaysian operations, so that when we look at the cash cost on a combined basis, we will not be significantly increasing that cost. Now, I can't give you really what the exact profile of that is going to be. But that's certainly our objective because as I said, preserving a low-cost position is crucial to our ongoing success.

[Chen Jiang, analyst]

And last question from me, please, on Kalgoorlie. I'm just wondering, have you -- well, Kalgoorlie has started processing the concentrate from Mount Weld at the end of last year. Any challenges since you started? Are you expecting any technical challenges from -- for processing the carbonatite? For the rest of the year, will you send the Kalgoorlie carbonatite to Malaysia?

[Amanda Lacaze, executive]

So yes, there are challenges, stop press. We've got a big complicated new class and there's some challenges. And we certainly have been -- as we introduced speed. I mean, of course, this actually showed us areas, there was all of our team had a sort of hypothesis on where we might face those challenges. Well, you don't know until -- that's all theory until you actually introduce the material. So, there are some areas where we're improving and like with any start-up, you started up, you shut it down, you started up, you shut it down and do some further works and all those sorts of things. I'm not sure that really the reporting made it to the East Coast, but there's been a very, very significant issue with power in Kalgoorlie over the last week. It was taken out completely by lightning strikes and absolutely amazing these huge towers, which were taken down.

For us, fortunately, we actually were not operating the plant at the time as we were doing some of these enhancements because I think that the southern disturbance to power could have been quite problematic for us as it was, having no power was definitely an issue, but by no means is great for us running an industrial facility is for some of the other residents of Kalgoorlie, and we did our best to contribute and help within the community. So, I think that our latest forecast is that we should have power back on to the plant by the end of this week. In the meantime, we have gensets, which are providing power, which allows us to be able to continue with certain of our sort of final construction activities. But as we said versus the heat wave, we're really sort of focusing on things which are undercover. So, we had plenty of challenges, but we also have plenty of skills and capabilities to meet those challenges. And I think we're all feeling that, that we can continue with the ramp-up in good order.

With respect to processing the MREC in Malaysia, fortunate they were not in a situation where we're trying to do something with no experience and no skills. In fact, for the decade of it now. But as well as that, we had the ability to actually produce a rare earth carbonatite in our plant, which we have then been able to test through circuit. This gives us sort of a great deal of confidence that the circuits they've been designed will work. And so we think that's a lower risk change from others that we may sort of put in place at various times.

[Operator]

Our next question comes from Daniel Morgan from Barrenjoey.

[Daniel Morgan, analyst]

My question just relates to demand. I mean, obviously, it's disappointing the commodity price has been tracking how it is. I just wanted to hear what thoughts you can give us on your customers? Like obviously, you've called out air conditioning as being weak in other property-related sectors. But is there any shift in demand from wind customers? I understand that's been pretty weak over the last 12, 18 months as well. And I guess probably the point, is there any reasons to be optimistic on a turnaround in demand? Any concern?

[Amanda Lacaze, executive]

Well, maybe I might let Pol take that question. Suffice to say that certainly we have seen some wind projects deferred. But look, I'll just hand over to Pol, he's actually been in each of the major markets relatively recently, meeting with customers, and will be able to give you a bit more color than I can.

[Pol Le Roux, executive]

Not much I can add to that, but I think mainly the interest rate increase has postponed or some wind turbine projects in Europe, but that's not really major. Electric car growth is there and is overall doing pretty well. The key factor is definitely the economy in China. So, I think you are more expert than me to forecast how fast the economy will recover in China. I'm just a [ retail rare earth ] guy, you are finance expert for that. But that's a key point. When we'll try and recover.

[Daniel Morgan, analyst]

Yes. And maybe how do you think Amanda in terms of about bringing on your own supply in the next 12 to 18 months? I mean, you've got the potential to add a lot of supply to the market versus what you have. How do you anticipate sequencing that given the demand for the product has been a bit weak recently?

[Amanda Lacaze, executive]

So, demand for our product remains resilient. We continue to have everything that we produce finding a home under contract. I mean we have a very clear look through in terms of ongoing demand and our major customers continue to forecast increases in demand. Having said that, with any business where any business is dependent upon sort of the general economic environment or in our case, some specific sort of sectors and so building optionality into our business ways that we can sort of make the best choice of cost, be able to make choices to dial up or dial down at particular time is something that we've actually worked on pretty hard for probably over the last 6 years to be able to give us a bit more flexibility in the business compared to the days when we just had to turn out as much as we could fast, which we couldn't sell at any price. So, our customers have still got clear growth trajectories in their forecast in function. And that's the reason why we continue to invest with confidence in increasing our capacity.

Thank you, everybody and Happy New Year anyway.

[Operator]

Our next question comes from Austin Yun from Macquarie.

[Austin Yun, analyst]

During the December quarter, you can see the product mix has shifted. So, how should I think about the product mix for both production and the sales will be next 2 quarters, please? And just quickly also to confirm that the 1,500 tonnes of production for the March quarter is for NdPr only?

[Amanda Lacaze, executive]

Yes. Thanks, Austin. Yes, the 1,500 tonnes is the NdPr production that we're expecting. I think this is one of the things that we spent a fair bit of time thinking through, particularly through the shutdown and as we've done some of the testing of the circuit. As you would recall, last quarter, we took to having a very soft first quarter this year and then sort of having to ramp-up to the new capacity occurring in the June quarter. We've chosen a smoother ramp-up profile, which will actually see us produce a bit more over the 6 months, which we think is generally a good thing. In terms of the mix, I think as we move back into full production, we will see the mix actually sell back to normal profile.

[Austin Yun, analyst]

And just one quick follow-up. Given the revised ramp-up profile, would there be additional working capital expected? Or how should we think about any potential cash flow impact, if anything that we need to be mindful?

[Amanda Lacaze, executive]

Well, I think that it will be -- it will resemble much more of a normalized quarter. With the exception that this quarter we get the benefit because those things paid on 30-day churn, we get the benefit of some of the reductions in costs that came -- production costs that came during our shutdown in the December quarter. But no, nothing significant.

[Operator]

Our next question comes from Al Harvey from JPMorgan.

[Alistair Harvey, analyst]

I'll just follow up on the supply and demand outlook. So, I guess maybe a couple here, just thinking through what your views are on the additional production quotas announced by China late last year, what the motivations there might be, just given prices have already been soft? And then perhaps on the demand side, just wondering if Lynas has any exposure to the growing AI and robotics industry and whether you've done any research on the potential total addressable market there in terms of the rare earth side of things?

[Amanda Lacaze, executive]

Sure. Thanks, Al. Once again, I think I might pass that across to Pol, but start by saying, yes, we see automation and factory automation as being one of the key growth drivers and as we go forward, but Pol can speak particularly to production quotas. He was in China towards the end of last year and can give us a bit more color on that. Across to you, Pol?

[Pol Le Roux, executive]

Yes. So, there was this surprising announcement very end of the calendar year for additional quotas. I understand that this was specifically required by one Chinese major, [ we explained ] who had consumed this full year quotas. That led -- I mean, obviously, led to a bit of oversupply, given that at least the mood and the demand was not very strong, and that explains the situation we are in at the moment. The key element is always to understand -- I mean China remains the biggest by far with supply in the planet. How much they increase their production quotas reflects their overall strategy. And 2 points on this one.

I had to do recently an exercise for long-term demand of NdPr and actually, if you forget the quota but project yourself 10 years ahead, there is so much need for it that actually this game on production quotas may not be the main driver of all. And the second is I remain of the same position that actually China has developed downstream a clear leadership. They leverage their risk production position to do that. Today, they have the downstream leadership established. They should not understand them paying so much attention about where the supply comes from because downstream, they are really having the lead. This being said, we'll see what will be the quotas after the [ New Year ] year. So February 9, I think, is the New Year. And so we expect something to be announced in the second half of February.

[Alistair Harvey, analyst]

And just when you just mentioned that you did a bit of work on it. Are you willing to share kind of where you see the Chinese production quotas or their production capacity capping out in your assumption there?

[Pol Le Roux, executive]

I don't think I can do that, sorry. You can as well ask me what the price would be tomorrow and I can't do that.

[Amanda Lacaze, executive]

Not he want. But it would be bullish of us to speculate on China government policy. And it's not something over which we have control. We come back to, as I was saying, what we do control is the ability to operate our facilities cost effectively and to develop strong, robust relationships with our strategic customers who are going to be sort of driving demand over the next 3 to 5 years. And that includes now that we have a very clear pathway to increase production, the ability to engage with some of the customers who have been seeking sort of additional product from us on long-term contracts for some time now, but with whom we've not been in a position to be able to make that commitment until we have some real confidence in the capacity uplift.

[Pol Le Roux, executive]

And just adding up to that, sharing with you a little bit of my trip to China. I haven't been to China for 4 years, so for December '19 before COVID. And it was interesting two different aspects. First is that you really feel the economic difficulties. You can see that in the street. The second is that [Technical Difficulty] suppliers, saying that Lynas is now the most competitive rare earth producer, which means 2 things. One is the idea of killing Lynas is off the shelf. And secondly, as you know, we always said that Lynas, our costs are our muscles. And so it's important that the efforts have been delivered and recognized. So that was really the very interesting takeaways from my trip to China.

[Alistair Harvey, analyst]

And yes, I do appreciate, it is hard to know what's going on with China. I just thought given you've done a little cap yourself that maybe be willing to share. But we'll move on. Just wanted to get a sense of how you're thinking about longer-term messaging around the total capacity system capacity for Lynas, given you've got, call it, 15,000 to 16,000 tonnes of cracking and leaching capacity and notwithstanding the weaker market conditions. What kind of works have you done on looking at a rate beyond 12,000 tonnes? And perhaps maybe you can guide us on when you might go about stepping out those kind of plans?

[Amanda Lacaze, executive]

I do love you guys. I mean we are still in the process of finalizing this significant next step and now you want to know what are and what more. But actually, what more is one of the reasons why we have continued the significant drilling campaign at Mount Weld. So, we are undertaking real exploration and infill drilling that allows us to better understand the ore body as it is. And so we have not converted the carbonatite drilling program to a mineral resource at this stage, but expect to be able to do that over the next several months. And so as always, the value starts with what's under the ground and really understanding that we have sufficient material to be able to feed a larger production capability is critically important.

And the results are really very positive for 2 things. One is sort of additional redo the NdPr and as we've looked at it whilst we [Technical Difficulty].

[Alistair Harvey, analyst]

Can you guys hear me? You just dropped out a bit there.

[Operator]

[Technical Difficulty] Thank you. Please remain on the line. Your conference will resume shortly.

[Amanda Lacaze, executive]

Hello, I'm back.

[Alistair Harvey, analyst]

You're back, we can hear you again, Amanda.

[Amanda Lacaze, executive]

I'm not sure where I dropped out, I was in full flight.

[Alistair Harvey, analyst]

All right. That's all right. You were on a bit of a roll about the Mount Weld exploration results. So, I might just finish with one more on that, if I can. I guess I just want to kind of clarify the wording in the release around the grade. So, it does say that total rare earth oxide grade in the fresh carbonatite is averaging up to 3.3%. So, I guess I'm just trying to understand if that's the peak or it is the average and just how you kind of think about that with respect to the reserves that are currently approximately 8%? And then yes, I just want to get a sense of what kind of gives the team out there a view that it could be -- the fresh carbonatite could be a simpler and lower cost process versus the higher grade saprolite material at surface?

[Amanda Lacaze, executive]

Okay. I did actually cover some of that when I was speaking into [indiscernible], but certainly, the work which has been done at present on possible ways to process this material, I think if you know that the saprolite zone has its own set of challenges with respect to the float circuit, the very fine particles and the ability to use a simpler separate process for the coarse grained material, we see as being prospective, bearing in mind that this is an early report. We are not -- we have not converted this material to a mineral resource. In that way, if that is the case, I mean it does make this the ability to be able to cost-effectively process even though it sort of on average a lower grade, I think, is very positive for our business going forward.

So, I think that the other thing which was [indiscernible] when I dropped out is some of the additional information that we have been able to get as we conducted the drilling campaign, particularly on the distribution and availability of heavies is really important because, as you know, high performance magnets need a combination of both NdPr and also heavies. And I think the prospect of being able to mine for an element, not just mine for grade is also very positive for our business.

[Alistair Harvey, analyst]

Just really quickly on that. It does look, though, like the dysprosium grades, 3 to 4x lower in the fresh rock zone versus saprolite zone that you're already mining. So just how do we reconcile that?

[Amanda Lacaze, executive]

Sorry, the dysprosium results that we have seen are actually related to the -- are actually related to areas which don't fit within our current life of mine, even in the saprolite zone. So that's what we're actually doing more work on is to understand in those areas, which sit outside given that our current life of mine was primarily focused on grade and by default before NdPr is actually looking at the areas outside of the where we can see further enrichment of the heavies. But I think that we're at a stage at this stage, where we've got some good prospective results and it's important for us to share those with the market. We need to do some more work and will in due course convert this into a proper mineral resource and subsequent mineral reserve for Mount Weld.

[Operator]

Our next question comes from David Deckelbaum from TD Cowen.

[David Deckelbaum, analyst]

Good morning, Amanda, and team, thanks for squeezing me in here.

[Amanda Lacaze, executive]

Pleasure, it is not too late for you.

[David Deckelbaum, analyst]

No, no, no. You guys came in early this time around. But I wanted to maybe ask a high-level question. Obviously, this quarter, there is a bit of a transition. You all endeavoring in multiple growth initiatives. I don't necessarily need to know what's next, but I am curious in the context of the cash burn that's probably foreseeable for the next several quarters, how do you kind of square your capital initiatives right now with the uncertainty of the market, which as you pointed out earlier, is highly contingent on the broader Chinese economy recovery, which no one seems to have the answer to right now? So, how do you think about sort of that risk management right now? And how far away are we from any modification to timing of capital outlays? Are we sort of kind of too pregnant with some of the projects that are ongoing now? So, it's more of a let's finish those up commission and then wait and see.

[Amanda Lacaze, executive]

It's an excellent question, David. And I think you would not be surprised to know that we have done a fair bit of work on this. I mean, you cannot just keep spending money blindly or bankers would say, why don't you take on some debt, it's like, well, the market is down, the dumbest thing we could ever do is actually spend borrowed money. So therefore, what are the profiles that allow us to be able to preserve cash if we need to. At this stage, we don't see this in the short term because we have been able to develop such a strong balance sheet and really the key project in terms of capital consumption over the next 12 months is going to be the Mount Weld expansion. And we see that as being both able to be accommodated within our current balance sheet and highly desirable to complete within that period. But we have a watching brief on us. And we have identified what we can do. We just don't need to do it at this stage.

[David Deckelbaum, analyst]

Maybe a little bit more in the weeds, but just when I look at this past quarter's results, it appears, unless I'm incorrect that maybe the -- your absolute total costs are increasing right now. And I'm curious if any element of that is a function of commissioning or downtime at facilities that you would deem to be more one-time in nature as opposed to, obviously, just total operating costs increasing on a unit basis as you bring on Kalgoorlie?

[Amanda Lacaze, executive]

So that's all a bit complicated. But I guess one of the important things here to recognize is that, as I said, in terms of what we report here is cash flow, not a -- not as we will report with our half year where we actually get accounting costs associated with production. And the cash cost, of course, has slightly lags production. So during the quarter, we effectively had close to a quarter with cash costs associated with production, but 50% of the quarter of production, we will see some of that benefit come in during this quarter. But as you've identified and as I mentioned earlier, it is an adjustment year and we will see some increases during this year associated with operation of the Kalgoorlie facility, which once we've got it up and running today, we will then look to optimize.

[Operator]

Next, we have Dim Ariyasinghe from UBS.

[Dim Ariyasinghe, analyst]

Just on the ramp-up, can you maybe let us know in terms of optimization or give us a little bit more color on how you could potentially manage a ramp-up of Kalgoorlie with regards to lower prices? Like is there any elasticity in how much production you can have? How agile is the facility versus lower prices?

[Amanda Lacaze, executive]

Yes. Probably not a huge amount of elasticity in the ramp-up phase to the extent that as we start the facility, we need to be testing and pressing its capability. So no, I mean, it is an expensive -- it's a possibly period as we produce during that phase. Once we have a sort of a view of operating capability and we're operating stably there and at the same time, we're operating with stability in Malaysia, then certainly, we have an opportunity to look at how we best optimize that and we may do things differently according to market conditions. But during the ramp-up phase, probably not a lot of room to -- not a lot of [ real growth ].

[Dim Ariyasinghe, analyst]

Maybe one, [indiscernible] blue sky, if you could just remind us on your heavy rare earth strategy? Maybe that's something a little bit more exciting versus $50 NdPr upright?

[Amanda Lacaze, executive]

Everyday is exciting. Even at $50 NdPr price gives us plenty of exciting things to deal with. But it means, look, I think that the original exploration as I talked about Weld, is really very much about, light heavies were a happy coincidence that we roll along with it. The processing sort of our end-to-end processing was absolutely designed to optimize, say, recoveries for light and didn't necessarily optimize recoveries of heavy. So, we see that we have opportunities to improve that. As I said, we've got the opportunity to mine in areas that work within our current life of mine plan, which would see us produce more heavies as well. These are all important in terms of them looking at alternate sources for heavies.

I think every one of you has written about sort of ionic clay deposits and prospectivity from those. And certainly, for us, very close to home of the Malaysian ionic clay deposits, which are being progressively developed. The Malaysian government has nominated sort of development of rare earth industries, upstream and downstream is one of their important economic focus areas. And so working with potential supply sources in Malaysia to complement the material that we have available out of the Mount Weld ore body is clearly a priority. And then looking further afield at other heavy sources, of course, is, is of course, sort of on the agenda. But I would say that those are sort of developing that world, looking to partner and develop Malaysia and the 2 things that I think are the most prospective at this stage.

[Operator]

Next, we have Al Harvey from JPMorgan.

[Alistair Harvey, analyst]

Just want to follow up, Amanda. When should we expect the resource update?

[Amanda Lacaze, executive]

Probably mid-year, mid-year-ish. We generally provide an update around about the time that we produced our annual results and we would think that we will aim to do it no later than that. Of course, if the team can do it earlier, we'll [ update ] the market accordingly.

[Alistair Harvey, analyst]

And just finally, a bit more of a follow-up, just thinking about that potential again beyond 12,000 tonnes. Like how do you think and in the context of Pol's analysis, how are you thinking about whether or not the market could take, I suppose, you mentioned that thinks that there is a requirement for more material, but how do you think about feeding in more material longer term?

[Amanda Lacaze, executive]

Well, I think once again, it's one of the reasons why we've been dedicating sort of time and is it to better understand Mount Weld ore body. We continue to sort of engage with various different perspective third-party suppliers, none of them have actually come to market yet, but that does this mean that we won't, over time, be able to take be able to work with others who may be able to develop a resource to be able to process that resource. And as I said, with a particular focus on some of the upstream resources, which we do expect to come available, particularly in Malaysia. This is a sort of -- it's closer to home, and it's a jurisdiction and where we already know what we're doing and understand sort of the potential sources of additional material.

In terms of our processing capacity, as said, cracking and leaching, we've now got plenty of capacity and so downstream, we've got a very low cost uplift from the 7,000 tonnes to the 10,500 tonnes capacity in Malaysia, one of the great benefits of a brownfield expansion. And I think we're relatively confident that we would be able to take a further step there, but it will be sort of, done sort of phased appropriately with what we do with capacity in the other stages.

[Operator]

Our next question comes from Paul Young of Goldman Sachs.

[Paul Young, analyst]

I know it's been a long call, so thanks for taking the question. I just want to dial -- designing a few specifics. And the first one is around the slight upgrade in production for NdPr for the June half. Just want to clarify, you've done the expansion works for debottlenecking on the cracking and leaching in front end. Have you actually completed the expansion of the sovereign extraction, the 2 sovereign extraction trains? Is that still ongoing?

[Amanda Lacaze, executive]

No, it's done. What we need to do now is to stabilize those and increased fee grade through to those as we bring MREC from Malaysia as well. Bear in mind that we've got to have both the feedstock from Malaysia, sorry, and the MREC from Kalgoorlie to be able to feed the increased production. The upgrade went really well, and we are very confident about those circuits, which is the reason why instead of sort of we've been conservative in what we've said previously, which was the wholesale production, lower wild circuit stabilized, things working very well for us right now.

[Paul Young, analyst]

That's amazing, well done to the team, it's probably the fastest expansion I've seen of a back end refinery in the industry, so well done to the team. Second question, Amanda just on Mount Weld, I noticed it was running at 80% nameplate in the quarter. Why would you be running it as hard as you can? I know it was running at basically nameplate a couple of quarters ago. Is that just ore type changes or something else?

[Amanda Lacaze, executive]

No, just because we were shut down for 6 weeks because we've been able to build the inventory and because we are always mindful of costs.

[Paul Young, analyst]

So, it's more working capital management that Mount Weld is running at [ 80% ] and throughput in the quarter?

[Amanda Lacaze, executive]

And it's now back to 100%.

[Operator]

Thank you. I would now like to hand the conference back to Amanda for closing remarks.

[Amanda Lacaze, executive]

Thank you. And look, thank you, everybody, for joining. I think that it is always to -- when the market is feeling soft, it's easy for us to feel like having a little bit of a wave. But generally, we see this market continuing to be highly prospective. It's growing, it's important, and we're about making sure that we are in the best possible shape to win in all circumstances, whether market conditions are really, really positive or whether as they are today, maybe not so positive, but we need to be focused on making sure we can be successful across all stages of the cycle.

So thank you very much, and we look forward to a very exciting 2024 calendar year. And I'm sure I'll talk to you all again soon-ish as we announce our half year results.

[Operator]

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.