Lynas Rare Earths Ltd

ASX:LYC

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to Lynas Rare Earth quarterly results briefing. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the call over to Lynas Rare Earths. Thank you. Please go ahead.

[Unidentified Company Representative]

Good morning, and welcome to the Lynas Rare Earths' Investor Briefing for the March 2023 quarter. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. And joining Amanda will be Gaudenz Sturzenegger, CFO; Pol Le Roux, COO; Daniel Havas, VP of 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, MD, CEO & Director]

Good morning, everybody. Thanks for joining us today. I think that most of you will have had at least a quick look at today's report and will know that it's got a lot of information. So I'll just step through the key points in a fairly orderly fashion.

So actually I've decided that -- maybe what I'll do is, I'll start at the very end, which is really as they say, the bottom line. But after a significant investment in our future capability of $395 million year-to-date, we closed the quarter with $1.12 billion in the bank. And that, of course, reflects continuing strong demand and support from our customers, some really excellent production outcomes this quarter, strong cash flow from our operations despite the fact that the price softened over the quarter, continued very strong support from a JARE JOGMEC. So from our Japanese government partners as well as Sojitz and also our Japanese customers. And the fact that spending is on track for our major projects.

Of course, the really significant thing is that having $1.12 billion in the bank means that we have plenty of firepower to ensure that we are really well placed to capture upside opportunities by current growth and any other growth opportunities that present themselves. And we are also in an excellent place to be able to weather any downside risks. And many others have written on the macroeconomic who have much more detail on that. Then may -- suffice to say, our balance sheet puts us in a good place to deal with any of those risks.

So just taking those things one at a time, starting with the market and starting with demand. I know that there has been a lot of coverage of Elon Musk's comments, whatever he said, appears to be newsworthy. Some of that coverage has included really some quite detailed assessment of what is the real impact of Tesla changing -- announcing that they will change their motor technology. Some of you have even done some calculations on that.

Suffice to say that from our perspective, we have always known that there are technology choices. I think I've even said to some of you, there is always an alternative. And if there's not someone working on finding an alternative, and they have always been technology choices with respect to the use of rare earths, particularly in electric vehicles. However, the Neodymium Iron Boron magnet technology is the most energy efficient, because it is the lightest motor. And over the lifetime of a vehicle, it gives you the best efficiency. It has the lowest CO2 emissions from the manufacturing process compared to these alternatives, and it has the lowest CO2 emissions from the life of the vehicle.

So there are many car makers. I know sometimes it seems like there's only 1 electric vehicle maker, but there are many electric vehicles on the road, these days are many different models, and more are choosing in the FeB technology than the alternatives. So today, even with our excellent production outcomes, we find that demand still is ahead of our ability to service everyone who would like to buy Lynas NdPr.

Across the quarter as well, the price has softened. We all know and expect volatility. And of course, it's not going to goes up and so nice when it goes down, but that's the definition of volatility. Our assessment on this is that the current softness is very much about internal China dynamics. But we, at Lynas, remain very confident of the long-term trend, and we know that the Chinese rare earth firm share that confidence. We remain committed to growing to meet the market, and that's one of the reasons why our ambitious capital investment plan continues. So it's a little bit about demand.

Just moving into talking a little about production performance. Well, maybe a lot of our production performance because really, these are some outstanding results today. I can tell you I have never seen our people as energized as they are today right across the business, in all parts of the business. Those producing today at Mount Weld and Kuantan and those preparing for the future actually also in Mount Weld, Kalgoorlie and our U.S. team. And so this quarter, we've delivered record NdPr production.

I could leave it there because that sort of speaks for itself, but really want to point out that this is what we can do when external downtime is not a feature. It reflects the continuous process improvement of our operational team at each site and also across our sites. So our teams are operating strongly and affectively and we can see that in our results. Of course, the revenue and cash outcomes reflect our strong production and strong demand. And that strong cash flow, as I've said, underpins our capital investment and future growth.

I want to take this opportunity to recognize and thank our Japanese partners for their continued support. It's always -- support comes in a variety of different ways. It can come from just sort of saying, well, we support you, Lynas, right through to the sort of support that we really appreciate here this -- just over $200 million good reasons for us as investors and as the company to be very pleased about the Japanese commitment to the continued success of Lynas. $200 million in equity, which is escrowed for an extended period of time, which reflects the Japanese JARE JOGMEC's believe in the future of our business. So I just like this opportunity to say thank you to our Japanese partners because this is certainly a key part of ensuring that we remain unquestionably strong.

So then just looking a little at the major projects. I think everybody on the call would know, we have an ambitious program. Our projects are on track. We indicated last quarter that we targeted feed-on this quarter in Kalgoorlie, and we maintained that position. Alongside that, the work in Kuantan to be able to receive the new mixture of carbonate feedstock from Kalgoorlie is well progressed, and our Kuantan team will be ready to receive the material as it arrives onshore.

In Mount Weld, we've put some pictures in, because they always speak thousand words. I can speak in cliche someday, if I need to, I guess, but the picture is, I think, very informative. It's very exciting if Mount Weld to see the major earth work, got some of our first civils with concrete being poured in preparation for our new dewatering circuit.

And in the U.S., we have confirmed that we're in the final stages of all of the activities associated with the acquisition of the side on the Texas Coast, and we had engaged an external engineering team to work with us to -- for that project. These are all robust and resilient building blocks on which we can deliver sustained growth. But those of you who have been with us for a while would know it wouldn't been Lynas if we didn't have a few challenges. And of course, our most significant challenge right now relates to our operating license in Asia.

We've already disclosed the license renewal in March excluded the conditions which were first applied in the operating license we had at [Technical Difficulty], which is causing the shutdown a [indiscernible] Malaysia. The process of appealing against these conditions is clear, and it is sequential. So we have already appealed to the AELB Board. Our next step is an administrative appeal to the minister, and this appeal will be heard next Friday. We are very confident about grounds in that appeal. As you would know, we have 4 scientific reviews which have consistently found that our operations in Malaysia are safe. They are low risk, they are compliant with all regulations, and the AELB itself in every of its audit that it does of our plant has found that we are very satisfactory, which is the highest rating available. There is not a single expert review which has ever recommended the closure of any part of the Lynas facility in Malaysia because simply, it is not supported by any scientific evidence.

The license process under Malaysian law should be evidence-based and free from political influence. And so as I said, we believe that we have a very strong case against the maintenance of those conditions. However, I think as all of you would know as well, any legal process can be uncertain in terms of time and also in terms of outcome. So we have been working on alternate scenarios for some time. So of course, the best possible outcome is that we have 2 cracking and leaching plants operating, which gives us a big immediate step-up in our capacity in that part of the process. It won't be without its own challenges as we optimize across 2 sites, which will be performing at different levels with different cost profiles. But nonetheless, that's a problem that we'll be delighted to be managing.

The other option, which is where we only have our Kalgoorlie plant operating, of course, is more challenging. And the scenarios that we've developed there include an assessment of the feed-on date and then also on the relative speed of ramp-up. So we've looked at what happens if it's a relatively slow ramp up, more akin to the sort of timing that it took us in Malaysia through to what if it looks like sort of the type of ramp-up that you would expect in a business where you've got mature technology and known capability. We do expect that we should reap some benefit from our 10 years of operations and experience in Malaysia.

As I've indicated previously, our focus as we look at these different scenarios and the actions that we might take remains on how do we manage that inventory to meet the needs of our key customers. So it's become increasingly clear that as plant CNL is required to shut down on the 1st of July. We expect to be shut down from about mid-July into August in Malaysia. That reflects the fact that we get the first feed-on in Kalgoorlie this quarter. However, we need them to build sufficient stock for a shipment, and then we had the shipment timing, which shows us that we're going to be looking at August feed-on at the land.

Of course, once we restart the facilities -- the downstream facilities in Malaysia, the production profile of finished goods will align closely to the ramp-up profile at Kalgoorlie. And as we've said, ramp-ups are intrinsically unpredictable before you start them. We expect within a couple of months we'll have a very good assessment of that. So we currently are planning lower production for at least the first quarter and probably into the second quarter. I know that many of you will ask me, well, how much lower? And I'll say now, we cannot quantify that exactly until we have commenced operations, but we will be able to update as we move through the ramp-up process.

Importantly, today, we enhanced sufficient finished goods inventory in the pipeline to meet the needs of our key customers during this transitional phase. And as we have indicated in this report, we plan to sell the relevant inventory, particularly for our Japanese customers to Sojitz during this quarter for distribution as required. So for modeling purposes, we will see normal sales this quarter, but lower sales mix.

Of course, we remain very optimistic that this plan will be redundant. Once again, our operations are safe. We are a very strong contributor to the Malaysian economy today. But equally importantly, the Lynas plant in Malaysia offers Malaysia opportunities for development of both upstream and downstream industry. If our cracking and leaching plant is shut, those opportunities will be shut down as well. And we believe there are many in Malaysia today who understand that.

So as quarterly activity reports go, I'm really proud to present this report, really excellent production, good sales, strong cash flow, progress on all of our major projects, and that gives us a really solid foundation on which to continue to grow.

So with that, I'm very happy to ask questions. I'm joined here today by Daniel, Pol, Gaudenz, Sarah, who are all ready to answer questions if there's any detail -- any further detail required.

[Operator]

[Operator Instructions]. First question comes from the line of Levi Spry from UBS.

[Levi Spry, UBS]

So I guess I would like to ask you a little bit more about production. So can you talk to, I guess, Kalgoorlie, your confidence level was around feed later this quarter. And then this idea of products starting to go to Malaysia in August. How we think about that profile thereafter if you're also telling us that it's going to be shut for 3 months, which probably takes us to late October.

[Amanda Lacaze, MD, CEO & Director]

Okay. So I guess the simple answer to the first question is that we would not be affirming feed-on this quarter if we didn't have a -- nothing is ever absolute in our world, but that's our planning at present. We have prioritized all of the productive assets at Kalgoorlie. As you would know, sometimes there are buildings which you want in a plant in the longer term like an administration building, but we still need to be done for you to start production. So with a focus on the key productive assets, we do believe that we're going to have feed-on this quarter.

The 3 months is not necessarily into October. I mean we think that we will -- it will be -- once we had material in Kuantan, it should be relatively quick to come through. I mean it takes a couple of weeks to get through the downstream processes, but we will have -- this is unlike when we first started the land, for example. I mean, we do have our solvent extraction units loaded and will be sort of stable ahead of the introduction of the new feed. So what we're indicating is that it will be lower production for that 3-month period. But if we have material arriving in Kuantan in August, then we will start to introduce that into the process at that time.

The complete shutdown of the plant, of course, once again, is still dependent upon a couple of these things that we've not seen yet. First of all, it's dependent upon our appeal not being successful. But then the complete shutdown of the plant where we have no feed at all, given that we reach out quarter full feed-on given that the shift doesn't go -- doesn't sink on the way to Malaysia, which we think is unlikely because we've not had any do that, but it could happen. Then we -- probably the complete shutdown in the plant isn't going to be much more than we had during the first shutdown with COVID. So I mean, we're not looking at something which is dire here, but it certainly is a transition and any transition brings risk with it.

[Levi Spry, UBS]

Maybe something that would help us understand your confidence levels would be just if you could talk me through firstly this quarter, so that's June. I imagine in the month of June. And then product to Malaysia in August, what happens in between those 2 points? I'm not going to ask you that critical path or to.

[Amanda Lacaze, MD, CEO & Director]

Well, I'll tell you this, we have what we would regard as 4 critical part items at Kalgoorlie, and everybody here would understand that the critical path moves around. They're different for from a couple of months ago because once something goes on a critical path, you take action to take it off. But we have 4 critical path items at Kalgoorlie. All of which had good plans to address them. And so therefore, I guess, if you're asking about confidence, confidence can only be based on do we know what we know, and I believe we do. Do we know what we don't know? I think we've got a reasonably good idea of that. But of course, in the final thing and the reason why no CEO will ever say I'm 100% confident is there is always the potential for the stuff that we don't know that we don't know.

But we have a very clear, very detailed plan area by area at Kalgoorlie. We have the commissioning teams have already, in fact, started commissioning in some parts of the factory, including, I think, in particular, the filter, the filter presses. So both our dry and our wet commissioning plants are very clear, and people know what they need to do and when they need to do it to be able to deliver the outcomes that we're looking for. Why is there a gap between getting feed-on and getting product in Kalgoorlie? Because we're not going to ship a container at a time. So we need to build sufficient -- produce sufficient at Kalgoorlie to fill a shipment basically, which is not a whole ship, but it's -- we've got to have enough material that arrives in Kuantan that we -- when we then start feed on in the receiving area in Kuantan that we have confidence that we can continue that.

Remember, we are operating big chemical plants. They do not like to be stopped and started. So we need to have enough inventory before we turn that on for us to be able to confidently continue production. Does that help?

[Levi Spry, UBS]

Right. A little bit. And maybe I can just sneak one in on price. So what is the price now? Is it low 60s? Probably a bit lower than what we thought it might get to. Can you talk us through that?

[Amanda Lacaze, MD, CEO & Director]

Yes. Pol is on the -- look, the price, this is a very concentrated market. And the effects on price in the short-term can be many and varied and sometimes not even obviously logical. Yes, it's in the low to mid-60s. It started to just in the last few days, stabilized and start to turn a little bit positive. As I said, we see it being very much more about the dynamics inside China as China recovers from some of their more disrupting activities through the late part of the pandemic, but we don't see really any change in the long-term perspective for this market. Demand is strong, and it's likely that there'll be periods where demand notionally outstrips the supply. But Pol, did you want to add anything to that?

[Pol Le Roux, COO]

Sorry, it's difficult because I was cut for 5 minutes. So I don't know what that...

[Amanda Lacaze, MD, CEO & Director]

Okay. The question was the price is now sitting in the low 60s. Do we think you can go any lower? Or what do we think is going on? I was just reaffirming our view that it's about China -- inside China dynamics. The price can, of course, always go very low or very high because short-term implications are as -- can be significant. But in the long term, we still see it positive.

[Pol Le Roux, COO]

Yes. And it's definitely more than ever in the hands of China, which is the main reason why the demand is a bit weak at the moment. It's also because the Chinese economy is a bit down. So yes.

[Operator]

Next question, we have the line from Daniel Morgan from Barrenjoey.

[Daniel Morgan, Barrenjoey]

Cracking operational results on NdPr, pun intended. How do you anticipate -- how do you anticipate production for this coming quarter, the June quarter? Should we expect the same again? Or is there some sort of a water or a maintenance issue that might disrupt things?

[Amanda Lacaze, MD, CEO & Director]

As Pol would say, we always aim that today is better than yesterday and much worse than tomorrow. So our objective at this pun -- at this quarter would be that we continue to improve on our previous quarter's performance. Unfortunately, when there is an external disruption and some sort, it's not something that we can easily predict. So I cannot put my hand on my heart and say that pipe went home water pipe. However, we don't any indication today that, that should the case.

So as said, our team is 100% focused. I can assure you Pol drives some very hard on a daily basis and reminds them exactly how many tonnes have to be produced every day to get to our forecast. But absent any more significant external events, yes, there'll be some internal maintenance. But we delivered those results last quarter with a full 3-day shutdown as we did the tie-in activities for the new MREC facility in Malaysia.

[Daniel Morgan, Barrenjoey]

So just on the MREC, that receiving plant that's in Kuantan, is that complete and tied in now?

[Amanda Lacaze, MD, CEO & Director]

It's tied in. We've still got work to do to complete it. And on that one as well, I think I've indicated this before, we've taken the opportunity to not only just putting, we could have just said all, well, we're just put in a new dissolution plant. But we've actually improved a number of our operational passage, new soda ash load and unload a few other circuits, which actually improve our overall operations in addition to just doing the load and unload.

As a result, and the next time you come out to visit in Malaysia, you'll see that we have a new building with new facilities associated with it. It's still got work to be done, but we're confident it will be ready to receive the material when it comes from Kalgoorlie.

[Daniel Morgan, Barrenjoey]

Okay. And the Malaysian appeals process, I watched a press conference a while ago by the relevant minister where he outlined that the delegation that go into your plant in Kalgoorlie and that we're confident -- that you were confident at the time that the plant would be ready. And so I guess they foresaw that there wasn't going to be any production hiatus. Now that you are formally saying that there is a risk if 1 July is the date that there is a production hiatus, is there any ability to get that formally recognized by the relevant authorities to give you a few months grace on this issue? Or is it -- are you not having that sort of informal back and forth on this issue?

[Amanda Lacaze, MD, CEO & Director]

We have a number of submissions, and we have a number of relationships with various stakeholder ministries in the government. I think that there is a very good understanding not only of what Lynas does today, the effective tagging Lynas production out of the global rare earth market, even for a short time and the potential economic effect on Malaysia today and in the future.

Whether or not Kalgoorlie is ready is, of course, an important point. But the license in Malaysia really should be about our performance in Malaysia and our investment in Malaysia, not our investment in Kalgoorlie. And so Lynas invested in Malaysia, we were invited as we've gone through this, I've sort of looked over the history, I think it's 16 years ago, was the invitation to invest in Malaysia, and there were certain expectations of performance on both sides from Lynas and also from Malaysia.

And I can tell you that we have met every one of our commitments as part of that. And so really, the appeal is about Malaysia. It should not be about Kalgoorlie. However, if the minister sort of fit to today as appeal in any subsequent actions are properly considered, then of course, we would be very open to receive that sort of determination.

[Daniel Morgan, Barrenjoey]

And I mean you have to prepare for all options. I mean you might have to send some concentrate to Malaysia for a scenario where you are successful on this appeal, but it might be redundant if it were to arrive past 1st July. Is that something that you would do and spend money on running down that avenue?

[Amanda Lacaze, MD, CEO & Director]

Sure. Yes, concentrate logistics, one never likes to waste money. But I'll tell you what, there's no way that if we get an approval to continue operating on the 1st of July, that there will then say, oh dear, the build rate, and we have no feedstock. I can assure you that if we get approval to continue to operate, we will be able to operate.

[Operator]

Next question, we have the line from Reg Spencer from Canaccord Genuity.

[Reg Spencer, Canaccord Genuity]

I definitely want to labor it because you did provide some, I guess, meaningful commentary in your quarterly, but can I just clarify that irrespective of the ramp-up of Kalgoorlie and whether or not you are able to continue to crack and leach in Malaysia that there will be some volume of sales during that short period, albeit it will just be a lot lower than the normal production rate. Please clarify it...

[Amanda Lacaze, MD, CEO & Director]

Sure. In the first instance, there will be -- as I've said before, we will have some work in progress material when we hit the 30th of June because we -- if we don't get a change here, Pol and I am and Gaudenz will be running, cracking and leaching at absolute sort of max rate to ensure that we have as much work for NdPr as possible in the system. So that will take some days for that to actually see its way through the system and finally through to finished goods.

And of course, we will still be -- we will still have lanthanum cerium and probably some SEG material that we will be selling through that period because we have more inventory as that right now. And indeed, we have more work in progress right now. We're prioritized through even our tunnel furnaces. We prioritized the NdPr. So we're holding more work in progress on some of those other materials that we'll be able to bring through, but it will be at significantly lower levels than we are -- the business that we're writing today.

Of course, we looked at this and we said, should we -- because we have a forecast from our key customers. And we're looking at how do we match our inventory against our key customer requirements. We sat down and said, "Well, do we sell it now? Or do we sort of dribble it out over time." And we've made the decision that it is best to have it -- the majority of the material, which goes to particularly our Japanese customers and the Sojitz inventory close to customers, and that's the reason why we will see those sales during this quarter.

[Reg Spencer, Canaccord Genuity]

Okay. That's clear. I guess I previously assumed that you might offer to dribble it out but that certainly makes sense. In terms of the possibility of a successful appeal, how long much...

[Amanda Lacaze, MD, CEO & Director]

How did you heard that?

[Reg Spencer, Canaccord Genuity]

Sorry?

[Amanda Lacaze, MD, CEO & Director]

I mean, in the case of a successful and happy birthday. [Technical Difficulty] Yes, sorry.

[Reg Spencer, Canaccord Genuity]

Have you saw a specific period of extension or -- and that be related to how Kalgoorlie might ramp up? Or you just saw an extension and whatever period that might be -- would be subject to the respective authorities?

[Amanda Lacaze, MD, CEO & Director]

No, we've not said -- we have not sought an extension. It is our position that we were invited to invest in Malaysia under a certain set of conditions that we have met our commitments on those conditions. And so therefore, the imposition of additional conditions, a decade on from us making the investment, is not appropriate. So our appeal is not about net extension. Our appeal is about the removal of the conditions.

[Reg Spencer, Canaccord Genuity]

Okay. Understood. That's clear. And maybe just one last question, if I may, for Pol. We've seen pricing get down to high 60s, low 70s at the minute. Have you -- give any idea -- or are you able to tell us what that marginal cost of Chinese production might be? And do we start to approach a level where we do hit the top of that cost curve?

[Pol Le Roux, COO]

Yes. I'm not sure what I can say. First, there is not the Chinese cost. There is a cost for different producers in China. So obviously, a difference between northern areas integrated from mine to finished product from independent small producers who are buying concentrate on mixtures company. So you can easily make the numbers that I cannot share with you, but you take the price of concentrate imported from outside China into China. And assume this is just adding the cost of a production from there, and you will end up -- it's easy to estimate the price point for those marginal players who are paying at a high price to concentrate basically. So yes, we'll see we're probably getting closer. That's maximum I can tell you, but it's easy calculation to make.

[Reg Spencer, Canaccord Genuity]

Okay. That's very useful. I guess the point I'm making is if we are approaching that marginal cost, might we be looking at a potential for in pricing given the way that it was traded. That's useful, Pol.

[Operator]

The next question we have the line from Trent Allen of CLSA.

[Trent Allen, CLSA Limited]

I just wanted to talk about cash and in particular, what you might like to spend it on. I mean you mentioned that you described it as firepower. There's a lot of consolidation, M&A going on at the moment. And I mean, you've already got -- that we can call the biggest and the highest grade deposit in the world by an order of magnitude. So what could you look at to add to the Lynas story? Is it a heavy rare earth deposit? Or what sort of jurisdictions are you looking in? And also, I'd like to ask about how the exploration program is going at Mount Weld in the second part.

[Amanda Lacaze, MD, CEO & Director]

So let me start with the second part. So we're now nearly a year into I think the exploration at the world. We've done quite a lot of drilling. I think the last Board meeting when we were out there, one of our directors wanted to know, well, can we go faster if we put more money on it. But of course, some of these things, as you know, Trent, just take time, so we're actually in the process of really assessing a lot of those core samples, and that will allow us to -- we're working towards getting a JORC resource and ultimately, reserve on that cap on a tight material.

At the same time, we are doing more drilling within the current life of mine design, which will allow us to increasingly become more sophisticated in our mining. Up until now, we've mined for grade, but we do know that there are various parts of the ore body, which are relatively enriched with different materials, particularly heavy rare earth. And so they might be slightly lower grade but have a higher proportion of heavies in them. So we're looking to better understand that sort of geology so that we can be more sophisticated in our mine schedule. As I said, mine 4 elements as well as 4 grade.

So the geology team at Mount Weld is pretty excited. And we do also have working alongside us for the period, a couple of really very experienced geologists from JOGMEC as well. So that's really sort of fortified our team there.

With respect to growth, you guys will always say demanding, right? We've got over $1 billion capital program right now. In...

[Trent Allen, CLSA Limited]

You opened the door with your opening comment there, it would be real not to walk through it when you supply that.

[Amanda Lacaze, MD, CEO & Director]

Yes. Okay. All right. I'll take that. So yes, we have a really strong and well-articulated program, which sees us do more of what we're doing today but broadening particularly our industrial footprint because different customers and different jurisdictions are very keen to see production sort of closer to home. So we do have that. And as we execute on the already disclosed sort of major projects, which we will do over the next 1 to 2 years, then will be an even stronger position than we are today.

So then, yes, upstream, do we look at alternate resources? Certainly, ionic clay deposits with their preference for heavies is of interest. Rare earths from -- that are not from hard rock deposits are interesting because anything where the mining costs have already been sunk is of interest.

In Malaysia, for example, that might include things like some monazite-rich tin tailings or as you know, with Iluka, the mineral sands tailings, I mean, there are -- the Swedes are looking at rare earth out of some of the iron ore tailings from their large iron ore company. And of course, that's what northern rare earths in China primarily is their feedstock.

So there are upstream opportunities. We have a watching brief on that and understanding the difference between the different parts and deposits. And then, of course, there remains downstream activities.

Internally, we now have a really robust and really sort of a number of world-leading brains working on particularly developments around various types of catalysts. One of the most exciting is the use of lanthanum and cerium catalyst in the production of blue and green hydrogen or green hydrogen, but also blue hydrogen so it gives us a pathway to get to sort of the green hydrogen as well. These are serious opportunities.

And then do we want to have a greater position in the magnet value chain, is always a watching brief. I think I've said before, we -- I hope our objective is to ensure that somewhere like our plant in the U.S. has alongside it sort of metal and magnet-making capability. And we're happy to do that either with an independent firm, a partner or ultimately, if it doesn't happen, then we'll have to look at doing it ourselves.

So yes, there are many opportunities in addition to our current sort of big engine room for growth, which is really about sort of stepping up our capability in our core business.

It's actually, it's an exciting business that we're in. It's an exciting market, and we see lots of opportunities. And as always, it comes down to making good choices, not trying to do everything all at once.

[Operator]

Thank you for the questions. Next up, we have the line from Al Harvey from JPMorgan.

[Alistair Harvey, JPMorgan Chase & Co.]

Just another one on Malaysia. Can you just remind us what grounds the AELB appeal didn't pass? And I guess an extension of that why you feel confident in the appeal directly to the minister? And again, sorry, another little aside, just you did mention the contribution of the Malaysian economy. Do you have any kind of quick stats that would reflect Lynas' contribution there?

[Amanda Lacaze, MD, CEO & Director]

Sure. So we employ directly about 1,000 Malaysians. Indirectly, we've contributed to the creation of the economic study, set about 4,600 jobs. We spent over MYR 700 million a year, and a lot of that is in the East Coast of Malaysia and the state of Pahang in which we operate. That's a significant contribution. We were, I think, on the last time this assessment was done about 1% of GDP because, of course, all of our exports is $900 million worth of exports out of Malaysia last year. These are the sort of numbers that we are talking about. They are really significant.

And as we look at sort of support, as I said, support can come in many forms. And I can tell you that we have a list of submissions from local communities, schools, universities, suppliers, the local village chief, their economic development people, all of which form part of our submissions to the minister.

They -- why would it be different? I think that sometimes when you're dealing with anything politically anywhere, it sort of start -- there might be someone with a particular perspective politically, and it starts to get a bit of life and then it takes a little while for others to catch up. So there's a few dynamics around how politics work. But ultimately, we believe, and there are a number of avenues for appeal, this is simply the next step. We believe we have a strong robust argument, which supports the continuation, supports the fact that we should be able to continue to get economic benefit from the assets in which we invested in Malaysia.

[Alistair Harvey, JPMorgan Chase & Co.]

And just another follow-up commentary in the release was very low or possibly no production for 3 months out of Kuantan. Just wanted to clarify, would that very low production be the work in progress in light of the start of that period? Or is there ways that you could continue producing at least some material?

[Amanda Lacaze, MD, CEO & Director]

So as we said, we've gone sort of a range of scenarios in terms of best case right through to very worst case.

On a best-case scenario, we will have a relatively short complete shutdown and then we will start to produce some tonnes of NdPr, but we don't know how many of those will be until we've actually got the material and put it through the system. So I'm not being cute by not giving you a number. It's just not possible to do it until we see how we go.

As said, we will still have inventory for lanthanum and cerium, and I expect we'll probably still have some SEG because we're sort of holding some inventory on that at present as sort of we wait for the prices to turn around again. And so we would expect to continue -- we will be able to continue to process some of the LaCe, and we will certainly continue to make some sales in that area.

[Alistair Harvey, JPMorgan Chase & Co.]

Great. And just on your comments around Elon Musk's views on magnet. I guess I would have kind of quantify just at a high level that the differences between NdPr and ferrite magnets, I guess, take on board that they are efficient and lighter, but probably a fairly incremental weight sort of to a vehicle. So just trying to get some figures around the cost/benefit on NdPr versus ferrite magnets especially in the context of some potential capability sourcing supply of NdPr.

[Amanda Lacaze, MD, CEO & Director]

I might just throw that one directly to Pol because he's an expert on this.

[Pol Le Roux, COO]

No, I'm not as expert as Elon Musk who's expert at influencing the market price and your views on the market demand. Basically, there are many technologies. You mentioned ferrite magnets. I saw that someone, another expert in the world, there are so many of them, mentioned that it was probably a permanent magnet synchronous motor using ferrite magnets, I don't believe so.

But anyway, Musk said that in R&D, his guys in R&D developed a new technology with no rares inside. By the way, he was using induction motors until 3 years ago, 4 years ago, so. And from R&D to things getting under the hood take 5 years. So there is no reason to stress too much on this.

If you compare existing technologies, induction motors to permanent magnet motor, permanent magnet motor will be twice lighter, twice smaller and around 20% more energy-efficient with specifically a point to make here a very clear. The energy you save depends on how you use your car. So there is a difference between the guys who use this car on the highway and not being too aggressive versus a guy who use his car to go to work, stop and go all the time. So that's where you can say anything in the opposite because everything is in the cycle of the car.

But at the end of the day, what we always say is, in average, you will have a 20% smaller battery or 20% longer range for your electric cars, which is substantial. And so that's why we are not worried too much on the demand on magnets.

The other point Musk said that was that producing rares contaminate the planet. And I think this is the most important part of his comments. Mr. Musk, please take -- pay attention to selecting your supplier because some are dirty and others are not. And like any industrial process, this could be managed properly, provided the buyer pays attention to it.

[Operator]

We have another questions from the line of Paul Young of Goldman Sachs.

[Paul Young, Goldman Sachs Group]

First question, Amanda. First question is on the -- with respect to the hearing for the appeal with the Minister of MOSTI on the 20th of April, when do you expect an actual decision from that hearing? And are there any other examples of similar hearings in Malaysia and how long it takes for the minister to actually release a decision?

[Amanda Lacaze, MD, CEO & Director]

No. We don't know. We've mentioned this in the report, we say there's no statutory time frame under the Atomic Energy Licensing Act by when the Minister of MOSTI is required to make a decision. We've requested that those appeals are addressed urgently. We understand that request is being received and, indeed, even the scheduling of the appeal hearing itself did reflect the fact that we had indicated the urgency of the matter.

[Paul Young, Goldman Sachs Group]

Okay. And another call been here for a while, so just one last one, a second one for myself. And that's on just the cost modeling purposes and assuming that LAMP do have to close temporarily for up to 3 months in December half. What percentage -- roughly, what percentage of your $110 million of costs on a quarterly basis? And I understand that, of course, they include royalties, which is price-dependent. But what percentage of the $110 million are actually fixed cost of LAMP?

[Amanda Lacaze, MD, CEO & Director]

Gaudenz, do you have that number to hand?

[Gaudenz Sturzenegger, CFO]

Yes.

[Amanda Lacaze, MD, CEO & Director]

Yes, sorry, go.

[Gaudenz Sturzenegger, CFO]

Yes, Paul, I think we can say 60% is in the variable category. And after remaining one, you have a couple of elements, I would say, semi-variable like the utility, varies a bit, a mixed picture. But if you split that again, I would say probably 25% 15%, 60% but that's LAMP specific. So Kalgoorlie will be different depending on what the volumes obviously year-over-year running there.

[Amanda Lacaze, MD, CEO & Director]

Just the modeling, it's not our intention to reduce production at Mt Weld. We don't mind actually building a bit of a stockpile. And of course, all costs are variable over time, and we will make decisions accordingly in Malaysia. But probably a good comparison would be, say, during the COVID shutdown, we continue to operate Mt Weld at normal rates whilst the LAMP was shut down completely. So it gives you a good comparator.

[Paul Young, Goldman Sachs Group]

Yes, that's helpful. Sorry, just one last one, is actually just on assuming you do have to shut down temporarily, I presume that means a complete shutdown of the FX circuit, the 600-or-so tanks. And on that basis, and when you restart that circuit, is there any sort of rule of thumb we should think about as far as how long it actually takes to restart, the refinery and ramp up?

[Amanda Lacaze, MD, CEO & Director]

I'll let Pol say a few words. But the first thing I would say is that in the last -- even just in the last 18 months, we've had 2 instances where we have had to shut down completely, and they were unplanned, right? So it was COVID. We had sort of 48 hours worth of planning to the shutdown, but it wasn't really significant. And then, of course, we had the catastrophic water outage in September last year. So this will be a planned shutdown, if we are required to shut.

So therefore, we will be able to ensure that we had thing in equilibrium, things shut down not suddenly because when anything got shut down suddenly, that's not such a great outcome. So we think that any restart will be absent some of the hiccups that we've had in -- when we've restarted after unplanned shutdowns. But having said that, I'll allow Pol to make a few more comments on that without sort of guaranteeing anything because the world is always a bit of a challenge.

[Pol Le Roux, COO]

Nothing to add to this. We've been trained extensively, thanks to our water supplier into restarting the factory. So trust us, we are really expert on that, so it's a matter of our -- it's like Formula One experts. If you stop -- pit stop for refueling, we are really on top of the game.

[Operator]

Next question is coming from Regan Burrows from Bell Potter.

[Regan Burrows, Bell Potter]

Amanda and team, congratulations on results this quarter. Just a quick one from me. Obviously, the focus is going to shift to getting Kalgoorlie sort of up and running with the potential for spillover to next year. Just curious, does this sort of take away from your focus on the Mt Weld concentrated capacity increase? And I guess how should we sort of think about the time line to that? And then I guess the follow-on to that is, say, sort of hypothetically the Malaysian licenses, is it adjusted? Do we need to sort of anticipate, I guess, bottlenecks is getting to, I guess, your longer term 12,000-tonne run rate and, I guess, further requirements for capacity at Kalgoorlie?

[Amanda Lacaze, MD, CEO & Director]

Well, a fine line of question, Regan, but it's got many facets. Our team that are constructing and commissioning and will ramp up Kalgoorlie are different from our team that is working on the Mt Weld expansion. So they're both fully staffed. Other teams with relevant sort of contractor organization. So no focus on Kalgoorlie does not in any way detract from our focus on the Mt Weld expansion.

In fact, it's been a while since we've done a $500 million project, like a decade. And so the learnings that we've had from Kalgoorlie are certainly being applied into our Mt Weld expansion. And we think that, that is to its benefit rather than a detriment.

Yes, we are looking at what is Phase 2 Kalgoorlie. I mean we're certainly not wanting our Kalgoorlie team being distracted from Phase 1 to be thinking about Phase 2 until we have it fully constructed, commissioned and ramped up. But certainly, our facility at Kalgoorlie has been designed with an understanding that we may seek to do more there over time.

Similarly, in Malaysia, and given that we have an acceptable outcome from the appeal process, we have a series of actions that we would be keen to take there to further expand our capability. But I go back to we sort of like to do things with focus. And so 2 $500 million projects today running in Kal and one in Mt Weld is a plus work in the lab to receive that material. This is keeping us pretty busy.

[Regan Burrows, Bell Potter]

Certainly. And I guess, if I could squeeze one in, just on the shutdown planning you mentioned previously. Do you sort of make it, I guess, if you have a view on when you're going to make that call, is it going to be sort of right on the deadline? Or is this something that you're planning for, I guess, now?

[Amanda Lacaze, MD, CEO & Director]

No, we will run the cracking and leaching facility under any scenario until midnight on the 30th of June.

[Operator]

We have another question from from Rubric Capital.

[Unidentified Analyst]

Congratulations on fantastic results. My question today is about pricing. I mean clearly, there's a very strong demand for the product outside of China. But it seems like there is -- is there a bifurcation between -- of the markets in the non-China market versus the Chinese market? Because even though there's a strong demand outside of China for your product, it seems -- pricing seems to be affected by the oversupply onshore. Can you comment a little bit about that? And is it possible for that linkage to be somewhat broken over time?

[Amanda Lacaze, MD, CEO & Director]

Thanks, Once again, I'll invite Pol to comment on this as well. But the dynamics for rare earths pricing are always more complex than simply supply and demand. It's maybe a little bit more aligned in recent years than sort of some years ago, we would see the price fluctuate on a rumor. Someone's going to do this or the government is going to make this new policy or otherwise. So at present, I think, yes, the demand inside China is soft.

I think at present, you also see some jockeying inside China for market share, which is another sort of influence on that on the pricing. And then of course, there is sort of some consideration also to how certain of the Chinese firms might be seeking to manage the purchase materials from outside China.

So I think there's a variety of different dynamics, which are at work. And they will affect short-term prices. But we know that the big Chinese firms are very confident in continued growth in the market, and that's inside China as well as sort of the outside China demand. So we would expect to see this normalize over time. Pol, would you want to add anything to that?

[Pol Le Roux, COO]

Well, just a few ones. The question related to whether we could have 2 different markets, 1 China and the other outside China. I think it's known in past that the world is 1 single planet. The market is global. And while there is a bit of a benefit recognized and, therefore, paid for securing a non-Chinese supply chain and probably increasing appetite for that, the world remains global. So you can't fully disconnect one versus the other.

The other point is you mentioned rumors. It's just amazing how many -- how often and still we get fake rumors and news on the lack of transparency of prices, of risk in China so that they would be manipulated, not representative of reality. I saw last week someone in publication, probably a very good expert on rare earths, again saying that the published price of rare earths is lower, but the real price inside China is higher so that the non-Chinese suppliers are suffering, whereas the one in China are enjoying life.

I can tell you the price is published on any website like Asian Metal or otherwise, absolutely in line with the reality of the business and it's pretty transparent. And there is no reason in the real business to not believe that because everyone in the real business know that this is well-representing.

Currently, the demand inside China is weak. The economy, especially the real estate economy business is poor, so that affects the demand. So we go through a period of time of a bit weaker demand and things going down will go up someday and vice versa also. No reason to worry and no reason to imagine that there is a very sophisticated manipulation behind that.

[Operator]

Lastly, we have the line from Daniel Morgan from Barrenjoey.

[Daniel Morgan, Barrenjoey]

Just a question on the quotas. I mean when the quota came out of China, plus 10%, I think the figure was year-on-year. It was a big number. And at that time, it didn't really seem to reflect the strength of the economy or the -- what would be the downstream demand. Why such a big number in your opinion for the Chinese rare earth industry? Have they just misjudged demand?

[Amanda Lacaze, MD, CEO & Director]

Over to you, Pol?

[Pol Le Roux, COO]

No, here, I think I would take it as a part of the country strategy of China. China, if you look at their recent change in regulation from government, basically addressing the technology control, say that anything related to rare earths cracking, separation, magnet making, metal making, et cetera, all this technology is strictly banned for export. In other words, if you are a Chinese citizen caught helping a foreign company developing a factory like LAMP or magnet making, et cetera, you go to jail, which is probably unpleasant, as far as I was told.

And at the same time, all the mining sectors, so any Chinese will have the mining sector, can be allowed to do sources in the new category call restricted, which means that under condition. And the conditions that the raw material ends up in China, you can help foreign companies to develop their mining activities. So clearly, China wants to secure their downstream dominance. And so increasing production quotas helps to secure that because then they can use at the higher rate, their capacities.

And heard a lot, and I guess they had a lot of especially newcomers, junior companies who are betting on $120 a kilogram of NdPr forever, for their financing and all of a sudden are facing difficult time because it's not that high. So the aim is to really maintain this dominance downstream. And so limiting newcomers to come in the game is important for them, and that's what they're doing. And that's how I understand because they know very well that the demand was a bit weaker. So that's the only reason they would -- they did that.

[Daniel Morgan, Barrenjoey]

And Pol, this news on Myanmar, the regulations regarding mining there, is that something that we should pay attention to or not? What are people saying in the thread?

[Pol Le Roux, COO]

I think anything related to regulation in this part of the world, it's difficult to address through official news, actually. It's kind of gray area. So yes, I can't comment more than this.

[Daniel Morgan, Barrenjoey]

Okay. And last question, I'll let you go. But the -- I think the overseeing minister a while ago, maybe 2 years that we, i.e., China is selling our product at an earth price, not a rare price, if I recall, the price was about $78 a kilo back then.

[Amanda Lacaze, MD, CEO & Director]

No, it was about $35 when he shared that.

[Pol Le Roux, COO]

Yes, NdPr.

[Daniel Morgan, Barrenjoey]

Are we in that category now where the Chinese industry or some people in the Chinese industry players are feeling the pressure and maybe they're not getting the economic run that they could out of the industry?

[Pol Le Roux, COO]

Obviously, I mean, again, I repeat what I said. If you might, if you run the numbers, look at the published concentrate price imported into China from U.S., for instance. At the cost, you will see that the nonintegrated Chinese players are suffering these days because the current prices are very close to their cash cost.

[Operator]

We have no more questions on the line. I'd like to hand the call back to Amanda for closing.

[Amanda Lacaze, MD, CEO & Director]

Okay. Once again, thank you, everybody. Like I said, terrific, absolutely terrific quarter in terms of our operations. And we look forward to continuing to grow this business. And for any of my Malaysian colleagues who may be online. I will say [Foreign Language]. Thank you all.

[Operator]

Thank you for your participation. That concludes today's conference call. You may now disconnect.