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Edited Transcript of LYC.AX earnings conference call or presentation 28-Feb-19 1:00am GMT

Half Year 2019 Lynas Corporation Ltd Earnings Call

Sydney, New South Wales Mar 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Lynas Corporation Ltd earnings conference call or presentation Thursday, February 28, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Amanda M. Lacaze

Lynas Corporation Limited - MD, CEO & Director

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Conference Call Participants

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* Andrew White

Curran & Co - Resources Analyst

* Angus McGeoch

CLSA Limited - Analyst

* Cathy Moises

Patersons Securities Limited - Head of Research

* Daniel Morgan

UBS Investment Bank, Research Division - Director and Analyst

* Jim Copland

IFM Investors Pty Ltd. - Analyst

* Matthew Chen

Foster Stockbroking Pty Ltd., Research Division - Equities Research Analyst

* Tim Ainsworth

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Lynas Corporation Half Year Results Briefing. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, the 28th of February 2019.

I would now like to hand the conference over to Lynas Corporation. Thank you. Please go ahead.

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Unidentified Company Representative [2]

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Good morning, and welcome to the Lynas Corporation briefing for the half year ended 31 December 2018. Joining us on the line today are Amanda Lacaze, CEO; Andrew Arnold, General Counsel and Company Secretary; and Gaudenz Sturzenegger, CFO.

I'll now hand over to Amanda Lacaze to present the briefing. Please go ahead, Amanda.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [3]

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Good morning, everybody, wherever you are in the world. I hope you're having a great day. So thank you again for joining us and for continuing to show an active interest in our business.

As always, it is actually a pleasure to present our results to the market in a business where we continue to improve our operational performance. And as at least 1 analyst has said this morning, there's not much to see here because, really, most of what we have to say has been disclosed in our quarterly report. But looking at the P&L is always useful, particularly on a cost basis. It's undistorted by cash flow timings, and I think that it illustrates some continuing benefits that have been achieved in the business. It's also a useful report card on those things that we had been able to deliver.

So I would start by saying that this is technically a report on 5 months of operation as I would think most of you on the line would understand. Due to certain regulatory matters, we were shut down effectively for close to the whole of December. And so when we look at this as a 5 month result as opposed to a 6 month result, it actually shows that it is a very good result. And of course, in terms of comparing it, I think that it's useful and interesting as people look at the trends and the performance of the company to not just do a prior corresponding period comparison but to also be comparing this first half of FY '19 with the last half of FY '18. As I think everyone recognizes, there can be volatility in the market, and it can give you a more robust measure of performance when you look at it. Last year, we had a year of 2 halves, where the first half was definitely much more robust than the second half.

This year, I think that we have on continuing pretty low and soft market conditions, managed to improve our performance on the second half of last year. But even on a PCP comparison, our production is up and our sales is up, and that's 5 months versus 6 months. Our run rate pricing is -- our run rate performance is very strong. The big milestones that we passed, a number of them are related to our Lynas NEXT project, including proving the ability to produce 600 tonnes per month in both September and October. Before in November, we did actually shut down 1 of our SX5 trains to convert across to the separated Pr and Nd. And then of course, in December, we had the shut down due to regulatory matters.

As we've noted in the report, we produced and sold our first Nd, pure Nd, in the half year. It's -- and I showed you photos of this in the quarterly, but it's a lovely sort of lilac lavender color. We have, in this quarter, produced our first Pr, and it is a beautiful lustrous black color. And so it's quite exciting when you go down now and see these different colored materials. So we have produced our first Pr. And certainly, we are looking forward to continuing to build that business. As I've said before, it allows us to meet more of the needs of existing customers, many of whom use separated Nd and Pr alongside their NdPr. But as well as that it allows us to enter new markets, particularly the ceramics market with the Pr.

In the quarter, we finalized contracts on lanthanum, which see us with all of our lanthanum sold at a premium to published prices and continued to see improvements on our cerium quality.

Lastly, I was in Japan, I was meeting with our largest customers there. One of them now is well in excess of $100 million a year. They remain overtly supportive of our business. Pleased with the fact that the security of supply provided by the Lynas operations has allowed them to grow their business, and we look forward to further growth in the Japanese market.

But of course, regulatory matters have consumed a lot of our time in the 6 months to the 31st of December. And I don't need to go over all of those sort of blow by blow, except to say that we managed a lot of issues and managed our way through them quite productively, including the Review Committee report. The outstanding matter as we came to the end of the year was the letter that we received from the AELB on the 4th of December, which proposed 2 new preconditions before our license would be -- our operating license would be renewed in September -- or would be considered for renewal in December -- in September this year. Those 2 conditions, one related to NUF, which has now been resolved, as highlighted in our quarterly -- in our report that we released on the 14th of February. The second relates to the management of WLP.

So of course, we are alive to these matters within the business. And after very extensive review, discussion and consideration of the possible effects of the regulatory matters on the business, the directors have firmly and comfortably reached the conclusion that the account should be issued on a going concern basis. Those matters are covered in more detail in note 2.2 in the account.

Of particular importance in our considerations were firstly, the broad engagement that we had with the Malaysian government on resolving the outstanding regulatory matters. Personally, I -- my confidence is probably higher than it has been previously that we will see this -- a resolution to these matters. And of course, the second matter which is of particular importance is the continued extremely strong support that we have from both our customers and lenders in Japan.

However, as many of you would know, accounting standards are unforgiving. And on the advice of our auditor and in accordance with prudent disclosure, we have provided reasonably extensive commentary on the risks associated with the current regulatory situation, and the auditor has included an Emphasis of Matter in his report. And of course, those risks include the ability to continue to operate in the current form in Malaysia. However, this does not alter the directors' view that it is appropriate to issue the reports on a going concern basis, which reflects our confident view that either these matters will be resolved or the company can implement alternate strategies.

So in summary, despite a variety of distractions, the business remained on song. Our people in the business remained engaged and focused on ensuring we continued to improve our operating performance and to ensure that we continue to meet customer demand. The production run rate was excellent and reflected the fact that we are banking the improvements which we invested via the Lynas NEXT project. And we have a very strong foundation for continuing to improve the business in the second half of the year.

So with those as opening comments, I am as always delighted to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Daniel Morgan from UBS.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [2]

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It's just a few questions if I may. Firstly, you've now come back into full production post the 1st of January 2019. Just want to get a feel for how that ramp back up is going. Is the operations going very well post the beginning of the year?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [3]

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Okay. So as you know, Daniel, we have 4 trains, 4 SX5 trains. 3 of them produce PrNd, and fourth is the one that we have converted into separated Pr and Nd. We are now -- in January, we had a few little hiccups because we've never shut down the whole plant for that period of time. And so it took us a little while to get flow rates back to where they wanted to be. But effectively, we are producing out of those 3 trains certainly at our target 600 tonne per month run rate. So we're actually getting more from those 3 than 18 months ago we were getting from 4. And the fourth train, which is the separated Pr and Nd, we are not yet operating at the same flow rates as the first 3. And that, I think, that you would understand. I mean, I think we're running at about -- it's not like low, low. It's not low, it's sort of 70% to 80%, but we're increasing those flow rates.

But bear in mind that these are really -- we have to have virtually 0 impurities in either of these products as they come out the other end. And that means things like residence time, and those sorts of things are really important. But the easy answer, production is on track, the 3 PrNd trains are operating as we expect, and we are continuing to improve the flow rate, the volume which is coming out of the Pr and Nd separated train, but we are prioritizing ensuring that we have the quality right.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [4]

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That's great and probably a good segue in to my next question, which is the separation into Nd and Pr. You mentioned it's about 1/4 of your volumes that you're planning to do right now. Are there any thoughts of separating more volumes going forward, or is it premature to think about that given the regulatory hurdles you face?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [5]

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It's probably premature to think about it, but it's nothing to do with the regulatory issues. It's just to do with developing customer demand to ensure that we are matching. We're always about matching what we produce to what the market actually wants. And the other thing is that, it's really about ensuring that we get that Pr right. Making really good pure Pr is not just flick the switch and it will happen. So we will increase or reduce the amount of additional separated product that we do based upon customer demand.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [6]

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And then just my last question, just more broadly on the markets for these products. It's somewhat surprising to see that the benchmark prices are flat given potential anxiety about your situation, supply in China. Commodity markets elsewhere are starting to lift as well. Perhaps you could just talk about your assessment of the market situation and current pricing.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [7]

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So look, I think that there are -- there is one fundamental which I think is important, and that is the Chinese, and I'm not saying the Chinese quite as depressed in all the time that I've been involved. They have taken very much to heart the U.S.-China trade war, the potential for a negative effect within the Chinese economy. And if you looked at sort of the internal statistics on the car market in China for the first time in I think 20 years last quarter, the demand actually reduced. And that is converting Chinese very much confidence flows, and that's converting to a more sort of general malaise. In terms of should the price firm on sort of some of the challenges that we're facing here in Malaysia, I guess there are 2 different views on that. One is yes, it should firm. The other is there are some who would believe their interests are best served by keeping the price very low and putting pressure over and above the regulatory matters on the company. Because there are some who would believe that it may be in their best interest if Lynas was no longer operating. So I think that the dynamics, as always, are a little bit tricky. But I would say to you that the fact that we have been able to conclude contracts for all of our lanthanum with outside China customers at a premium to the market price is a reflection that outside China, there is an increasing awareness of the importance of this. And that probably over time, that will translate well in terms of market pricing.

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Operator [8]

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Your next question today comes from the line of Cathy Moises from Patersons.

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Cathy Moises, Patersons Securities Limited - Head of Research [9]

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I was going to ask about the market conditions, so that's an easy one. But just wondering if you can give us any color on the commercialization options you're looking for the NUF.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [10]

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Sure. So just generally speaking, in terms of the action plan that we have agreed with the government, it is consistent with the core sustainability principles of reduce, reuse, recycle. We do actually have a plan for how we could see a significant reduction in the production at NUF. We -- it will require capital investment and, of course, that's something that we won't be undertaking until we have resolved the other matter. The reuse is a really important element. So there are 2 key markets into which we will be distributing our NUF for reuse. The first is building products. And so that's using the manufacture of cement and also potentially of plasterboard. And with Pahang Cement, who is the local cement manufacturer, we already have material which has been shipped to them, and that work is continuing.

In terms of the other big application for NUF, we did a 3-year trial on the use of NUF to replace Kieserite in agriculture, particularly in plantations. That trial has been peer-reviewed and published internationally. It was actually published out of The Netherlands. So we have a great deal of confidence in the findings of that trial. The use of Kieserite is high in Malaysia and NUF can be a replacement at a ratio of about 1.5:1. So these are the 2 big applications in terms of reuse. And then, of course, as part of that, we have also agreed sort of a process for long-term storage and disposal of the material for that which is not reused, although are now some -- it could all actually go into commercial applications.

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Operator [11]

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Your next question comes from the line of Jim Copland from IFM Investors.

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Jim Copland, IFM Investors Pty Ltd. - Analyst [12]

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Just a question on the ceiling that restricted your production in the second half of last year. My understanding is that's based on the amount of concentrate from Australia that you bring into the country. And yes, you're looking at ways to improve your recovery there and therefore to improve ultimately the number of units you can produce from that same volume of material. But are there any opportunities to increase that ceiling so that you don't have any requirement to close the plant down at the end of the year when you hit that ceiling?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [13]

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Yes. Thanks, Jim. So this -- we have 2 licenses in terms of production. So we have a license which governs the amount of lanthanide concentrate we can import, and that is grounded by the AELB. And we actually had, in all -- October last year, received approval for an increase in the amount of lanthanide concentrate that we can import. Alongside that, we also have approval from the DOE on the amount of material that we can process. And the way that this works is that the DOE says I won't look at this until you've got the approval on the additional imports, and we got that last year. But then we were right in the midst of the review committee process. And basically, everything went on hold and we weren't able to restart that approval of the processing amount until really too late.

So do we think that at some time this year we will get those approval limits aligned again? Yes, we have a very reasonable expectation that, that will be the case. Having said that, a key part of the Lynas NEXT initiative was to improve our recoveries, particularly in cracking and leaching here in Lynas Malaysia. And as a result of that, we will continue to use less lanthanide concentrate to produce the finished tonnes, and we are posting improved recoveries, which gives us very good confidence in that in the future. And the other thing also relates to the fact that the approval is a wet weight approval. And so whether the concentrate comes up at 15% moisture or whether it comes up at 12% moisture can have an effect as well. So we are not expecting that this will be a limiting factor in this calendar year in the way that it was a limiting factor last calendar year.

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Jim Copland, IFM Investors Pty Ltd. - Analyst [14]

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Great. That's very helpful. And then maybe just on pricing. You'd referred in previous years to the discussion you had with your customers about getting away a little bit from this spot price that we get fixated on and just achieving some pricing outcomes which are sustainable for both parties. And I wonder, is there anything that you can comment on that in the context of the current price being a little bit lower than some people expect and your realizations. How might we think about those relative to that spot price that we are all looking at so much?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [15]

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Yes. So we have a handful of long-term contracts which are either completely divorced from the spot price, as in a fixed price, or accommodate the spot price but within a floor/ceiling arrangement. And indeed over time, probably, it will still be a handful because it doesn't take as much with some of the big users over the life of the contract to actually involve virtually all that we produce. The contracts that we concluded are at good prices. We still had some customers who would like to conclude contracts right now but at prices that we would not be prepared to drive for the long term. So we're just maintaining a close relationship with those customers. So these are all non-Chinese customers, of course. So we're maintaining a close relationship with them. But we won't be concluding contracts at prices that we don't see as giving us best advantage over the long term. So it's better that we take a little bit of this short-term pain than we give away all of the long-term gain.

But we are -- it's not a margin shifting outcome, but it is I think a good outcome that with the lanthanum contracts that we've concluded, they are really at quite substantial premiums to the market price. And I think that once we get past some of these issues that continue to overhang the business that we will actually see that, that market price starts to move up. And we will probably at that stage, finalize some of the agreements that we've got in theory with customers but which we're still debating in the actual number. So we're on track, Jim. The strategy hasn't changed, but we're just choosing how we -- and when we execute it to give us best possible advantage.

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Operator [16]

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Your next question today comes from the line of Andrew White from Curran & Co.

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Andrew White, Curran & Co - Resources Analyst [17]

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I just wanted to ask a quick question on -- following up on the concentrate allowance. I was just hoping you might be able to give me some exact figures on what they are annually? Maybe you've disclosed them previously, but if you could just give me some numbers on what is allowed to be processed through the LAMP?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [18]

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No, we don't actually disclose that specifically. Sorry Andrew, yes.

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Andrew White, Curran & Co - Resources Analyst [19]

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No, that's fine. And just on -- following up from the previous question about you were saying 70% to 80% of the capacity for one of those SX trains. So previously you said, might be, if you can just clarify, you said 25% of the NdPr production is actually going to be allocated to be split off to Nd and Pr, is that what you're going to do?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [20]

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That's right, yes.

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Andrew White, Curran & Co - Resources Analyst [21]

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Okay. So I can do some numbers on that 600 tonnes of NdPr that you were producing, take off 20% of -- 25% of that and then work on 70% to 80% of that. Is that sort of how it works?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [22]

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That gets you pretty close, yes.

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Andrew White, Curran & Co - Resources Analyst [23]

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Okay, cool. All right. And just finally as well, I just saw in some media reports about some fires in Gebeng. If that's -- they're close by so?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [24]

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Yes. Gebeng.

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Andrew White, Curran & Co - Resources Analyst [25]

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Just wanted to know how close that was to the plant and whether there was any impact as well.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [26]

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It's really close to the plant. It's probably -- the closest that the fire got was 500 meters down the road. We -- our emergency response team has been working alongside Bomba, which is the fire department, for the last 4 days, day and night. It's not a fire that burns with the same ferocity that we're accustomed to in Australia. We don't see these huge flames and rapid movement of fire in the same way we do here. But we are -- we do have quite a lot of jungle undergrowth and actually a lot of the soil is very peaty. So it burns slowly but pretty consistently. So it is definitely something. We, as a good corporate citizen, have contributed substantially to the firefighting effort. It does not put our plant to risk. We have a large open allotment between us and where this is. And because it's not the same sort of vigorous fire that we get in Australia, it doesn't do things like jump roads and do all of those sorts of things. So it's unpleasant, but it's not threatening to our operations.

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Operator [27]

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Your next question today comes from the line of Matthew Chen from Foster Stockbroking.

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Matthew Chen, Foster Stockbroking Pty Ltd., Research Division - Equities Research Analyst [28]

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Just wanted to talk a little bit more about the WLP residue. And if you're still thinking about the 3-stage hierarchy. So that is to say, I think commercialization and PDF removal. And how far along are you in terms of thinking about the lowest stages of the hierarchy, the PDF and the removal? If you could give us a little update on that.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [29]

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Sure. So yes, you're right. Reuse, if that file is stored -- if that file is removed. So we have done the work on the reuse. Once again, the work that we've done on Condisoil is excellent, properly reviewed scientifically. In terms of the PDF, we have identified a PDF site. We have approval from the Pahang state government for the siting of the PDF within Pahang. And we have done the design and engineering work that would be required for constructing the PDF and specifies clearly the conditions for any area that would be appropriate for the construction of the PDF. In terms of removal, of course we have always and continue to say that this is not supported by best practice, and it's also not supported by science. It doesn't enhance in any way environmental safety, performance or sustainability, environmental sustainability.

Notwithstanding that, of course, we have diligently reviewed what it would take to be able to do it. And as we've said previously, it would be -- logistically, will take time. A little complex. It will be -- require several different approvals, which will take time and are quite complex. And of course, it will be financially onerous if indeed we have to removal of the material from Malaysia. But it is not financially fatal. It is just not a prudent or appropriate strategy for management of this material and it is not consistent with best practice. But having said that, yes, we are doing -- we are prudently doing the work on it. So I would say, Matt, to your question of how progressed are we, we have competent plans to deal with each of those various steps in the hierarchy of management of the material.

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Matthew Chen, Foster Stockbroking Pty Ltd., Research Division - Equities Research Analyst [30]

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That sounds good. So is there any opportunity to ask for an extension to that time line, which I think is the 2nd of September?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [31]

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Matt, there are many opportunities for getting a different outcome, and we are working with the government, the various civil servants across a variety of different areas to find what is actually the best solution to meet what is the underlying objective here, which is to ensure that we are managing this in a way that is safe for the environment and safe for the Malaysian people. So as I said, we remain confident that we will resolve this matter, in fact, very confident that we will resolve this matter, we just have not got the answer to disclose at this time.

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Matthew Chen, Foster Stockbroking Pty Ltd., Research Division - Equities Research Analyst [32]

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And I appreciate I didn't think you'd give a blow-by-blow account so that's probably -- that's good color.

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Operator [33]

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Your next question today comes from the line of Tim Ainsworth from [Telfain].

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Tim Ainsworth, [34]

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Just question about the market, Amanda, very much seems that 2-speed market at the moment with China obviously very soft despite the numbers we see from the electric vehicle production last year. Yet Japan seems to be growing. Presumably, that's general auto despite general auto being off on the global production figures for the last 8 years or so. Can you just put a bit of color where the NdPr is going into the Japanese market? Is the growth of NdPr outstripping the general trends there?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [35]

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Actually, right across the board. Needless to say, I spent last week in Japan, and with all of our key customers, including our autocat and our magnet materials customers, not with all of but with some of. I didn't see them all in that week. But it's across segments. It's in automotive but it's also in electronics and in automation applications, but it is certainly a much more optimistic view of the world. And as we look at it and we review sort of what's happening in the Japanese market and what's happening with our business, there's an interesting cause and effect that shows as our market share grows so does the Japanese market. Which I think that you see is a strong reflection of any industry -- any industrial company will invest and grow their business when they're confident about their supply of -- and quality of raw materials.

So I think that in addition to that, that outside China customers are much more aware of the need for them to not just -- they're a bit asleep at the wheel with -- well, they can get cheap stuff out of China, what the hell, and they're a bit more aware of the need to place their business across sort of both markets in terms of supply. So I think that that's there as well. I think the other thing that you need to bear in mind also is that Japan -- Japanese magnet makers are still pretty much at the top of the tree in terms of technology. And so when you look at discriminating the tree and oftentimes, we talk about just NdFeB magnets, but there is difference between the high-end magnets used in automotive and electronics, and some of the lower-end magnets which are used very extensively, particularly in Chinese production in toys and all of those sorts of things.

So I think as with many of these mini markets when conditions are a bit softer, the high end has tended to hold up a little better than maybe the low end has done. So I think there's a variety of different influences here. But certainly, the Japanese market for rare earths in total, not just the magnetic materials -- and this includes particularly, say, for example, polishing powders -- is growing and is much more buoyant now than it was, say for example, 4 or 5 years ago.

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Tim Ainsworth, [36]

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Okay. That begs the question with the Nd going into the high-end magnets, Amanda. Is there a premium for a higher spec Nd going into the high-end magnet area?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [37]

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There's not a significant premium on the Nd. It's a small premium. The premium is more correlated to the Pr which is, of course, as I mentioned earlier, a harder material to produce.

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Tim Ainsworth, [38]

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Okay. And the last one, of course, when did that higher spec NdFeB, the prices -- when does that reflect in what the Japanese prepare to pay for NdPr?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [39]

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On the 22nd of June, Tim. (laughter) (inaudible). You want to give me a date -- you want me to give you a date? And you know what, if I could actually reflect on a daily and a date-based basis exactly what's going to happen with rare earths pricing, I might actually not be doing the job that I'm doing today. I might be out there trading the stuff.

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Tim Ainsworth, [40]

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I'm just reflecting your negotiating skills, Amanda.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [41]

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I think first of all, very seriously, I would restate, we do get a premium for the sales that we make into Japan. It is the reason why we always prioritize them. And we remain confident that over time, in the same way that we are seeing the premium in lanthanum, although Pol still thinks it should be $15 a kilo, that we will, over time, be able to bank the value associated with the quality of supply that comes from Lynas. Certainly, the ability to really press that in terms of negotiating, Tim, has been somewhat affected by the matters that we've been dealing with over the last 6 months.

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Operator [42]

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(Operator Instructions) Our next question comes from the line of Angus McGeoch from CLSA.

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Angus McGeoch, CLSA Limited - Analyst [43]

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Just a quick question around the pricing benefit from separating the Nd and Pr. If I'm looking at current prices, summing into China pricing, so it'll be crude -- but based on you operating at 80% on that 1 train, and assuming all 4 trains operate at the same output, I'm getting a slight revenue differential. But if you then assume you can successfully ramp up to be fully operational in all 4 trains, then you get a pricing benefit. So just wanted to understand the benefit of separating the NdPr to average price is -- are the China pricing -- is that a true reflection of what you think you can achieve? Or is the upside scenario better than what's being reflected in current prices?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [44]

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Probably a little bit better. But it will be -- it will -- as always, it will follow the shape of the China pricing. But the pure Pr goes into the primary market so what we'll be selling that into is autocat so alongside our cerium. So one of the benefits to that is it allows us to increase our share of wallet with those customers, which given the amount of cerium we produce is a benefit in and of itself. The other market, which is really a big market, Pol likes to say it's toilets, but it's ceramics. But a lot of ceramics go into toilets. And so we're only just entering into that market. So really how we can -- how much we can bank value out of that business is still going to be something that we need to develop.

And if we have any Pr left over, which we're not seeing any Pr left over, it can also go into sort of magnet market where it will be used by particular customers to top up Pr percentages in their magnet making capability. So at this stage, we haven't concluded our first sales, although we have our first orders for Pr, pure Pr, and we have our first production. But how far we are able to push the value from it is -- we'll see that over the next -- probably through to about June this year. And by the end of this financial year, we'll have a very good view on it. But the premium is quite healthy for the pure Pr.

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Angus McGeoch, CLSA Limited - Analyst [45]

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Yes, yes. See that in the price. And so assuming it all starts working in line with your expectations, are you looking to convert more trains?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [46]

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Not at this stage, Angus, because certainly, we wouldn't really be all that keen on doing that until we could do it at -- until we were very confident of being able to do it at the same volume that we produce the NdPr. I mean, it's just a piece of arithmetic. If we were saying, well, we're permanently sacrificing volume for this, that would change the economics. But as well as that, and I mentioned this sort of earlier, at this stage, let's confirm the demand, confirm the sales, confirm the contracts for the material that we are producing. Once we're sold out, then we'll do the arithmetic on is it better to produce more separated material or is it better to sit with the agreements that we already have.

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Angus McGeoch, CLSA Limited - Analyst [47]

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Got it. And just one last question on the concentrate. In terms of the moisture content coming out of Western Australia, are you guys actively looking to reduce that or that's not something you're focused on at this point in time?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [48]

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Yes, we are. We are always focused on improvement opportunities right across the business. It was very helpful for us that we had a long hot summer in WA. And it was also very helpful that last year we put in a concrete drying pad and we put in a shed to just help to assist us with environmental drying of the material, but we have also been running tests on mechanical drying with some success. For us, where we are right now is we're doing the work on what's the optimum moisture content, right? So, drying is not a complex task. We can dry it to 1%, in which case, we -- well, Mt Weld looks pretty red anyway, but it's even more covered in red dust than it would be at any other time. It's also beneficial in the shipments and handling that there is some moisture content. So for us, we need to do some further trials on really what is the optimum moisture content and then we will do the next step in terms of what mechanical drawing techniques might we use to augment the natural drying techniques.

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Angus McGeoch, CLSA Limited - Analyst [49]

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Got it. So should we think about it in terms of an uplift in, I guess, usable volume that you're exporting to Malaysia or do you quantify it that way?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [50]

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It's a cost -- it's straight up cost savings if we get it dry.

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Angus McGeoch, CLSA Limited - Analyst [51]

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Just cost savings, okay, not just cost saving but cost savings?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [52]

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Yes, yes, yes. Because it gives us a logistics saving. Shipping water is one of the things that I hate doing, especially to a country where we actually do have plenty of water these days. So it's straight up cost saving on the logistics. And then, this is the reason why we're doing the work on sort of the optimum moisture level, is we think that it should further improve the operation of cracking and leaching here in Malaysia, with a slightly drier material. But that's the work we're doing right now.

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Angus McGeoch, CLSA Limited - Analyst [53]

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Yes. So I guess the only other angle I was coming from is if the volume -- if there's a volume restriction in place, obviously, that relates to the total volume, right? It factors in the moisture. So if you're bringing down the moisture, that means that you can maintain a certain level of productivity that is higher than...

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [54]

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Sure. Let's say for round numbers, the number was 100,000 at 15% moisture or it was 100,000 at 12% moisture. There you go. You found yourself some headroom. I hasten to say, Angus, those are not the numbers, so don't put them in your model.

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Angus McGeoch, CLSA Limited - Analyst [55]

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No. I wouldn't imply that they are.

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Operator [56]

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(Operator Instructions) We have no further questions on the line today. I would now like to hand the call back to management for closing remarks.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [57]

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Okay. Well, once again, thank you all for joining the call. I think I see so many Australian-based investors and analysts. I look forward to seeing all of you next week. And here's to the start of another exciting period in the annals of Lynas.

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Operator [58]

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Ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation. You may now disconnect.