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Edited Transcript of LYC.AX earnings conference call or presentation 29-Jul-19 12:00am GMT

Q4 2019 Lynas Corporation Ltd Earnings Call

Sydney, New South Wales Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Lynas Corporation Ltd earnings conference call or presentation Monday, July 29, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Amanda M. Lacaze

Lynas Corporation Limited - MD, CEO & Director

* Andrew Arnold

Lynas Corporation Limited - General Counsel & Company Secretary

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Conference Call Participants

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* Andrew White

Curran & Co - Resources Analyst

* Angus McGeoch

CLSA Limited, Research Division - Australia Country Head

* Cathy Moises

Patersons Securities Limited - Head of Research

* Daniel Morgan

UBS Investment Bank, Research Division - Director and Analyst

* Dylan Kelly

Ord Minnett Limited, Research Division - Senior Research Analyst

* Matthew Chen

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

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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 Quarterly Results Briefing.

(Operator Instructions) I must advise you that this conference is being recorded.

I would now like to hand the conference over to your hosts today, the 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 investor briefing for the June quarter 2019.

Joining us today are the CEO, Amanda Lacaze; General Counsel and Company Secretary Andrew Arnold; and Chief Financial Officer Gaudenz Sturzenegger.

I'll now hand over to Amanda Lacaze. Go ahead, Amanda.

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

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Good morning all. It's a beautiful day in Sydney today, and I'm lucky enough to be sitting in an office where I can see the sparkling harbor. I think in Malaysia it's hot [because it's warm day] of the year. Thank you again for joining us this morning.

The quarterly results, the quarterly activities report. It was an unremarkable quarter for us operationally, not unremarkable in general terms but certainly unremarkable operationally. However, what was remarkable and really excellent for us as a business, it was the first time ever that we could make choices on our production and sales activities.

Previously for the last 5 years, as we've sort of been working to ramp up the business and to build some cash reserves, effectively we've had to max out production no matter what every quarter and max out sales no matter what the price was. And I still have the scars on my back from the year that we had to sell at $29 a kilo. I think we had to do in early August. And within a month the price had gone up by $4 or $5 a kilo, which would have been just nice for us to have, but we are now in a position where we can make choices.

And so in the quarter which has just passed, we did make some choices, as we've covered in the report. The market, despite the trade tensions and the attention in the media, is quite soft. This is particularly after the economic situation in China. So demand in China is soft. There's been -- the automotive market there is not growing, which is sort of a really big driver. There's a real concern there about the effect of the trade war, and sort of the level of optimism in the market is not where it has been previously.

The outcome of this is that the price has also been very soft. So you can see this in the table that we have where we have the price table. We started the quarter in very negative territory at -- just under $35 a kilo was the published price. Now it spiked up at the end of June but really only sort of pretty briefly and it started to settle back again now in July. So as we've said very clearly in the activities report, we made some choices, as far as production and sales were concerned.

For us the really great news is that, whilst the demand in China is pretty soft and the price is also not a lot encouraging, demand in our key outside-China customers is very strong and continues to grow. So in this quarter that's just passed, we only sold to our key strategic customers, and that means that there was very little of our product that actually went into China -- to Chinese customers. I mean there are some far-out end user contracts which ended up back in the hands of Chinese magnet makers, but basically we stuck to our key strategic customers, and as we seek to grow our outside-China business, of course that would not surprise you that most of those were outside China.

And because we were making to stock, we also did not max out production, and we don't see any reason to be sort of consuming costs on -- when we're making to stock. And once again it's just a pleasure to be in a situation where we can make some choices, as opposed to just really having to max out everything that we do.

The other thing, though, which I think was a bit more remarkable is that the SEG price, particularly off the back of dysprosium and terbium pricing, firmed, and that was certainly very good for our business.

So if the operating result in terms of throughput was not particularly remarkable, what was remarkable were some of our achievements in terms of safety and environment, and we're very, very proud. It was actually just out of the quarter. It was in early July with the fact that we just logged 1 full year LTI free in Malaysia, and that's been the result of a huge amount of focus and effort from everybody involved in our Malaysian operations. It's one of those things -- it's never done. And so we're superstitious enough not to want to make too big a fuss out of it, but at the same time, it is certainly an achievement that we would like to recognize.

As well as that, in Malaysia, we've mentioned before, the AELB audit which is part of our licensing process is completed. And we were found to be very satisfactory. And during the quarter also, the DoE, the Department of Environment, had a third-party audit of our site. And that was really terrific because we got 21 best practices, 1 minor observation and 0 non-conformances.

During the quarter, I don't need to labor it, but of course we announced the Lynas 2025 plan. We're very excited about the development of cracking facility in Western Australia. We're well engaged with local authorities and the state government as we work through exactly what that's going to look like as we make our site selections and as we work through the permitting process.

We're likewise very excited about the U.S. expansion that we announced, and we're working very productively in that area. We've virtually completed sort of the design of what we want to do. And as we said, once we've got this really finalized, then we will finalize the elements of the joint venture and we'll make relevant announcements.

And then of course, the other significantly positive thing during the quarter was the rescheduling of our JARE loan facility. The significant rescheduling means that we are able to accumulate cash from operations over the next couple of years, which will pay for the capital requirements in our Lynas 2025 plan.

So we were pretty busy during the quarter even though I would say that in a lot of ways it was unremarkable on an operational basis.

And then of course, the Malaysian regulatory situation, I know, if I don't say anything, you're going to ask the questions. You'll probably ask the questions, anyway. So we continue to be very productively engaged during the quarter. So on the 30th of May, the Malaysian Prime Minister announced that the license would be renewed. Now that has not at this stage converted into a formal renewal of the license.

And to just put that into perspective: The earliest we have ever had formal renewal of our license was a couple of weeks before the renewal date. There are certain processes. There are dates that we submit certain pieces of information or otherwise. And so in the last couple of weeks, the deputy minister for MESTECC said that there would be a final decision in the middle of August, so please don't be sitting being concerned that we haven't had this done yet. This is not unusual.

We continue to engage very productively across a number of different areas in Malaysia. A couple of weeks ago, there was an excellent conference held in KL, rare earths roundtable. There's a great deal of enthusiasm within the Malaysian government for the sort of growth that can be achieved by developing further downstream industries in the rare earths sector in Malaysia.

And I think the Prime Minister has been pretty clear about Malaysia as open for business. He wants to see significant growth in terms of industrial activity because this is one of the things that really makes a difference to the economic health of not just the country but also of the population. And over the last probably 3 or 4 years, this is sort of conversation I've had with a number of people in government. There's been sort of a switch into things like property and/or finance, but this doesn't have the same -- it doesn't create the same engine room as industrial activity does.

And so there's a great deal of enthusiasm for this. And at the roundtable event there was a number of very eminent Malaysians who spoke to the value that this could create.

So we don't have a license renewal. It's the 29th of July. We would never expect to have been given a specific outcome on that by this stage, anyway, but we continue to be well engaged with the government. And we certainly take comfort from the Prime Minister's statements.

So I think that's probably all that I want to say, and I'm happy 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 Dylan Kelly from Ord Minnett.

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Dylan Kelly, Ord Minnett Limited, Research Division - Senior Research Analyst [2]

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Amanda, 2 questions from me. First one just want to understand what's happening with the plant performance around SX5. Can you just walk us through the performance around the different NdPr trains and what's happened and how that relates to possibly your strategy on making choices? I'll just pause on that one, if you can take us through that first.

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

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So SX5, trains are working just fine. The optimization of the separated Pr and Nd continues, but that's really related to multiple grades in terms of production. So the circuits, the SX5 circuits, have not caused us any problems or being a bottleneck in any way in the operation.

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Dylan Kelly, Ord Minnett Limited, Research Division - Senior Research Analyst [4]

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Okay. So -- and can you just walk us through the decision to maintain the run rate very similar to the March quarter? Just trying to understand the different moving parts. Is -- does it in fact come back to your questions -- on your point around making choices about not increasing supply into a market that's quite weak? Or is this more around optimizing the feed of new Duncan material? Can you just give us more color around the logic there?

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

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So there's a whole number of different factors all interacting that -- at the heart of it. As you can see, we finished the quarter with 323 tonnes of NdPr product, whether it's NdPr or it's separated Nd and Pr in inventories. We didn't feel any pressing need for us to be building more inventory than that, and so we're certainly not going to be pushing a whole lot harder.

On the other hand, yes, we've had some new ore blends coming through from Mt Weld. And that's always -- it's not a challenge in SX. It always presents a few challenges for our cracking and leaching stuff, but primarily, I mean, there's no reason for us to be sitting on 600 tonnes of product and to generate at the costs that would be associated with that.

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Dylan Kelly, Ord Minnett Limited, Research Division - Senior Research Analyst [6]

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Okay, fair enough. So just looking over the next few quarters in terms of your run rate, should we be thinking about 600 tonnes per month as the normal, or simply reverting back to where you currently are?

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

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So I think, Dylan, what we've always said is that we actually aim to match our production to demand. I know that this is not always fashionable in mining and chemical production. It is certainly fashionable in consumer goods that you do a forecast of demand and you manage what you produce to demand in the market. So what we see is that we had increasing demand in our key customers. So therefore, we would expect to be able to be continuing to ramp up our production rate to match customer demand.

So -- but there's no need for us to produce sort of over and above what demand is. Otherwise, we end up selling at lower prices, somebody else actually makes the margins further down the track when the price goes up. Or we simply have it sitting in our warehouse. And there's no -- given that we can produce, there's no great reason for us to be holding a lot more inventory than we have at present.

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Dylan Kelly, Ord Minnett Limited, Research Division - Senior Research Analyst [8]

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Okay, fair enough. And do you mind if I just come back to your point about Duncan and the potential uplift you might get from that when you start talking about this, the joint venture in Texas? What are the key problems or advantages over that blend coming into -- in through Mt Weld or in through Malaysia over the next 6 months? Is production likely to be impacted by that in terms of some troubles in terms of first handling it and, on the other side, the potential uplift in the SEG or SEG concentrate coming through with such high-grade heavies?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [9]

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Yes. So we don't think that every time there is a change in ore we have to adjust to that. And sometimes, we can do that quickly, and sometimes it takes a bit longer. I think we're getting better at it each time that we do it, but it's -- we're dealing with a natural product. And so variations and -- certainly present some challenges, but our assessment on the sort of the most significant influencers in terms of the ore is that there are other physical elements to deal which are more challenging. For example, as we've gone into Mining Campaign 3, we've got a lot of crandallite in the ore, and that's a bit more of a challenge.

But the bench testing for Duncan says that it should float and it should behave the same way. In fact -- the fact that it's called Duncan is a bit of an anomaly because we really just see it as part of the same ore body, but all of our bench-scale testing says that it should perform the same way as the CLD ore.

I think that it's going to be other elements of the Mining Campaign 3 ore which is going to be more challenging for us than the fact that we've got an ore grade which is more enriched with the heavies. And it still got about the same amount of NdPr. It's -- actually has less cerium, which is sort of a good thing for everyone.

In terms of effect on financial performance, that's one of the reasons why we've put into the quarterly activities report what we're seeing in terms of pricing for these heavies. And most certainly, the requirement for particularly Dy and Tb in electric motors operating at temperature is significant. And even today, I would say that, based upon sort of customer inquiry, we could -- we have no problems whatsoever with selling more than 100% of what we will be producing.

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Operator [10]

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

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Cathy Moises, Patersons Securities Limited - Head of Research [11]

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Well, Dylan sort of got most of the questions out good and early, but I had one more question on that 1,500 number. Is there any sort of -- the background with the -- whilst you're waiting on the approvals, for the next expansion, is that also sort of weighing on your mind when you're keeping it down to those levels?

And looking at those levels staying down and the fact that the NdPr price has softened recently, what's your line on the funding? Because if the prices stay at these sort of levels, the funding looks like it's going to have a gap.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [12]

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I don't think the funding is going to have a gap, based upon our forecasts over the next couple of years. We're sitting at close to 100 million right now. We -- if you look at operating cash flow this year, you've got to take out the effect of really the substantive Lynas NEXT costs.

So over the last 12 months, you would see even at pricing -- and expectation is that the pricing won't -- on average across the year probably won't be any worse than it's been in the year just passed. I mean it's been -- there's not been anything remarkable or exciting about the pricing in the last year, apart from about 2 weeks at the end of June. So we -- based on our forecasts, we're not seeing a gap. We're seeing that this will be fine.

And then the point around the processing limits, I'd take your question on that. It's relevant. However, we have -- as part of the approvals for NUF management we've completed in the IAEA, we expect, as we move through the license renewal process, that all other approvals will move back onto a more normalized basis.

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Cathy Moises, Patersons Securities Limited - Head of Research [13]

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Just going back to the gap. I mean I too am forecasting some nice rises over the next couple of years, Amanda, but is there a stopgap which you could fall back on if there was a delay in that nice pricing reaction which we all do expect to happen? Or would you just delay the expansion to meet cash flow, or would you look at alternative funding if that was the case?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [14]

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Cathy, you know what, everyone wants to lend me money at present. I think I'm the prettiest girl in town. I think I'm (multiple speakers) set up on stage, prettiest girl at the dance in terms of [borrowers]. So the -- I think that debt and/or equity markets are probably open to us.

My own view is that if we can self-fund it off a very favorable agreement with JARE, then that is better for shareholders, but I guess we're not sitting here being concerned about whether we will be able to fund this activity.

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Operator [15]

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Your next question comes from the line of Daniel Morgan from UBS.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [16]

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Amanda, a few other questions. Just firstly, one, is water supply and consistency still an issue for operations?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [17]

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Daniel, I'm glad that you're staying interested in us. So is water an issue? I'm going to answer it because I think your question is about Malaysia. So no. I think we've put into this a picture about the water storage on. And so there's always -- we now have more buffer.

I have to say that there are still days that I turn the tap on at home and it doesn't -- the water doesn't come out, but generally speaking, the -- this is not an -- this has not been an issue. And with the additional buffer with the third process for the pond, we would need to have a main [passage] for a pretty extended period of time before we had a bit of a buffer.

However, if I'm not too [obtuse] and I sort of answer it generally, I mean, in WA, of course, water is always a challenge. It will be -- part of our decision process when it comes to location for the new cracking facility will be access to water. And certainly the work which has been done there on water has been really significant, but nonetheless we still work very hard to conserve our water there so that we can get closer and closer and closer to being in balance.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [18]

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Okay. And capital expenses over the next 12 months, it seems like Lynas NEXT has come to a close and been tied in. Just wondering maybe if there's any study costs of the expansion that you're going to start to put through. Or is there any capital spending that's significant on the U.S. strategy as well?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [19]

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I hope that we start spending some capital this year. There won't be -- yes, there will be some study costs, but they're not going to be significant because of the way that we will go about the development planning in this. So we're not going to get an external construction firm that's going to cost us $20 million to do a study, but there will be some study costs in both locations.

And hopefully, because the U.S. task is a relatively smaller task, we will start to incur some capital costs during this financial year. I don't think we'll have significant capital costs in WA this financial year. And if it is, it will be sort of back ended.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [20]

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Okay. And the upcoming regulatory decision with the Malaysian cabinet, how is this -- what is your expectation of how would this be communicated to the market? Would you receive notification and then you would announce it? Would it be something that we'd see in the Malaysian press being announced by the government? How would you expect notification to be received by yourself and the market?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [21]

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Yes, that's an interesting question, Daniel. I -- we will update the market on any development. I would expect that, as with most of these things, we will receive notification in a formal sense, the AELB, which is responsible for regulating the license. However, given the profile of this issue in Malaysia, I would also probably expect that there will be some things said publicly by the government.

And I couldn't even hazard a guess as to sort of timing or scheduling of those 2 different activities, whether they'll be concurrent or whether one will precede the other, but I would expect that the market will know about it in short order once the decision is made.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [22]

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Okay. And maybe my last one for now, just on pricing. You seem to get a little bit better than benchmark pricing, at least from my read-through, in the quarter. Just wondering what were the drivers of that. Is that some of the heavy product that you're seeing, the prices lifted there? And are you getting the benefits of that? Or is it you get better pricing from your Japanese customers? I'm just trying to understand obviously the price -- yes.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [23]

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All of the above, Daniel, all of the above. So Pol's KPIs, number one, is to sell and, well, to sell everything, but number two is to continuously increase the percentage of our sales outside of China. So for example, in the -- so in the last quarter, as I said, most of our material were sold -- by far, most of our material were sold outside of China. And when I say that, I mean not just NdPr, but I also mean lanthanum. I also mean cerium. So we were making most of our sales outside of China. And so Pol's third KPI is to achieve a premium versus the benchmark price.

So how does he go about doing that? Some of it is about the contracting strategies that we have. Some of it is about the fact that we -- the market in -- particularly in Japan is slightly at a premium to the market in China. Some of it is about the quality of the materials, so selling more specialized blends. Even the selling more of the Pr and the Nd separated gives us a slight uplift in price.

So there's a whole series of strategies that we have to achieve an outcome where we are actually getting a price premium over and above the benchmark price. And we will continue with those strategies.

And sorry, of course, Daniel, yes, the improving price on the SEG material also was beneficial.

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Operator [24]

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Your next question comes from the line of Angus McGeoch from CLSA.

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Angus McGeoch, CLSA Limited, Research Division - Australia Country Head [25]

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I just wanted to touch on -- I was up in China last week, meeting with a -- I'm sorry, the week before last, meeting with a bunch of people, talking about the market. The consistent feedback we got is that the light rare earths market is pretty well supplied at the moment. As a result, near-term outlook for NdPr is stable. Potentially if strategic buying kicks in, then that's maybe where we see the spike come from.

But, conversely, the market dynamic with respect to heavies was very optimistic with regards to the availability of current supply being very tight and obviously demand profile looking forward being hard to identify where the incremental supply comes from. And that's obviously where you guys come in with your situation in America.

So I just want to get a little bit more detail from you with respect to Blue Line just in terms of how should we be thinking about what your ultimate goal is there with respect to supplying the heavy rare earths market.

And just a little bit more color on your sourcing for the feedstock I think the market is a little bit confused by. And I know you've outlined that, but just a little bit more color in terms of how we should think about that opportunity over the near term. And is there anything we can do to help put that opportunity in perspective?

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

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Okay. So the U.S., we think, is a really excellent opportunity for our business. There's been no separation capability in the U.S. now for over a decade and whether it's lights or whether it's heavies. And the result is that the U.S. market downstream is exposed, and there's been multiple column inches dedicated to that. So we see the U.S. as a great opportunity not just for heavies but also for lights in time.

So the heavies, I -- developing the capability to separate our own heavy rare earths material, our own SEG has been on our agenda since when we actually were looking at sort of our strategic path when we came up with the Lynas NEXT program. So separating heavies has always been something that we've been looking at as part of our industrial footprint.

And so why do it in the U.S.? Well, it gives us sort of a starting footprint in that area. There is no question that there's a lot of appetite in the U.S. for this type of thing. And particularly, the U.S. government is very keen to restart rare earths -- a capable rare earths supply chain in the U.S. And so this is a good opportunity for us.

It's something that we don't do right now. Basically, as with many things, we could have done it in Malaysia. We could say, well, let's wait until we've got cracking in WA and we'll do it in WA. Or we could choose to do it, as we have chosen to do, in the U.S. And so what we will do is that we will simply ship out SEG from our Malaysian plant to our U.S. plant and separate there.

In terms of generally sort of supply for any of our plants, we keep a watching brief on all of the various resources, since they are characterized by their owners, to understand whether there's any value in looking for alternate feedstock. At this stage, we haven't identified anything where we would say, well, gosh, we'll be better using that feed rather than continuing to develop our own.

But that doesn't mean to say that, that won't be the case at some stage. And there are certainly some interesting South American heavy rare earths deposits, but at this time we will be constructing our plant with the intention that it will be separating our own SEG.

Does that answer your question, Angus?

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Angus McGeoch, CLSA Limited, Research Division - Australia Country Head [27]

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I think it does, yes. I think it does. I think, I guess the part I was just trying to impress on was and maybe the obvious thing from being in China is just the lack of availability of heavies. And I mean it's obviously the one thing that the world certainly needs more of, so it's just be very interesting to see what you guys are doing there.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [28]

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We have tried to sort of make that clear in this report, that we see that where we've still got this sort of volatility and a bit of spiking is around NdPr. We're yet to see what we would say, and Cathy was referring before, to the sustained upward movement on the NdPr price. But we do expect that, that will happen; whereas we believe that the pricing, the positive pricing, that we're seeing at present is -- on the heavies is sustainable. And we certainly have a great deal of interest from the market and from our customers in the outputs that will come from that plant.

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Operator [29]

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

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Andrew White, Curran & Co - Resources Analyst [30]

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Amanda, just a quick question. Can you give a bit of clarity on, when the license is renewed, do you expect that the issue of the waste disposal conditions to be made fully transparent at the time of that announcement on the license renewal?

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

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Yes, I would think so, Andrew.

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Andrew White, Curran & Co - Resources Analyst [32]

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Okay. So it won't be a separate decision. It will all be bundled into one, you would say.

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [33]

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Well, that would be our expectation, that the license renewal will be explicit. Our license has always been explicit on management of the residues. And actually I doubt that the -- I mean there's no other option. There's 3 options. You reuse, or you put it in a PDF. Those are the 2 realistic options. And so I would expect that the license renewal will accommodate both of those opportunities.

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Andrew White, Curran & Co - Resources Analyst [34]

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Sure, okay. And I just saw the open letter that came out from your company last couple of days, maybe yesterday. I was just wondering whether you had any predetermined rules in mind on what sort of misinformation you'll pursue in the legal system. I saw, for example, there's a list in the table in that letter. So have you got sort of some things in mind as to what you'll pursue and what you'll let slide?

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

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I'll let Andrew sort of add to this as well, but frankly, the situation in Malaysia: I think, as everybody knows, there's a small group of activists who have had countless opportunities -- well, not countless, but they've had at least 8 opportunities, at last count, to present coherent reasons for their opposition to Lynas. And on 8 opportunities, that is 2 IAEA reviews, parliamentary select committee and then most recently the Pakatan Harapan's executive review committee as well as 4 legal cases, their reasons for opposition to Lynas have been found to be wanting.

Notwithstanding this, they continue to make assertions. And just in the last few weeks, their assertions have been escalated. I think this is because of the Prime Minister's definitive comments. And so they've been making more and more outrageous and egregious comments.

And so our experience is that if we let this go through to the keeper, that they continue to escalate. And really the open letter was a combination of making it clear that we will not put up with this. And there's a lot of people who say, "Well, if they really are telling lies, why don't you sue them?" I mean I have a whole lot better things to do than spend my time in court, but you get to that stage where you really have to say enough is enough.

And the second thing is that, if they're allowed to stand, people in Malaysia will think, "Oh, well, there might be some truth in this." So that's the reason for the letter. So it's not that there are sort of specific -- I mean these are just some of the most recent and most egregious claims that they have made, but we don't have a sort of specific sort of hit list of we will sue on this basis or we won't sue on that basis. I have no desire to actually sue. I just have a desire to make clear that these assertions are wrong in fact and wrong in intent.

But Andrew, I don't know if you wanted to add anything to that.

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Andrew Arnold, Lynas Corporation Limited - General Counsel & Company Secretary [36]

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Well, Andrew White, thanks very much for the question. I must say I can't fault Amanda's legal skills, so I don't have anything to add to that answer. Thank you.

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Andrew White, Curran & Co - Resources Analyst [37]

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That was brilliant. No problem. And just on, I guess, a little bit further clarity on sales of NdPr through the month. Just wondering to what extent you were able to capitalize on those high prices. And because, just looking at the pricing, obviously it would -- seemed, first couple of months in that quarter, prices were quite low. And then obviously Mr. Xi visited that rare earth plant in China, and things started to go a little bit more interesting after that and prices went up.

Is there anything you can tell us on the extent you're able to capitalize on those high prices at the end of the quarter -- towards the end of the quarter?

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [38]

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Not a lot, Andrew, as in we did not get a huge amount of benefit. You sort of can't have your cake and eat it too to the extent that you either say that you're going to work with strategic partners and work on sort of contracts that give sort of mutual assurance. Or you say, "Well, I'm just going to sell a whole lot of stuff at spot," and hope for the best.

So we get some benefit from it, not that you would have seen in this quarter's results. There will be a bit because we had with some customers price formula which will actually see us get the benefit this month from pricing both -- that pricing from last month, but really it was such a short spike. The really big spike was really sort of over and done with within a couple of weeks, no significant upside in terms of the results.

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Operator [39]

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Your next question comes from the line of -- from Matthew Chen from Foster Stockbrokers.

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Matthew Chen, Foster Stockbroking Pty Ltd., Research Division - Equities Research Analyst [40]

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I just wanted to dig a bit further on the Blue Line JV. So I just wanted to know: like I think, sort of winding back a couple of months since it was first announced, Grant and Kam saying, "We haven't sort of made a decision on when the heavies drop out," whether they drop out of the proposed expansion in 2025; or whether that comes out now with the Duncan extension or the CLD, whatever you want to call it.

Just want to clarify, I mean just on Dy, dysprosium, current separating capacity at Malaysia. There's no plans for that to be done there and it's all going to be done with Blue Line.

Can you also tell me a little bit more about like where that sort of study is up to at the moment? Because I think that's probably progressed from 2 months ago. There are people on the ground there. Have you got a sort of sense of time on how that -- how long that will take and when you'll update? Because that's -- that will be sort of very interesting to know.

I figure you'll take a longer-term view on the dysprosium rather than sort of trying to take advantage of the current price spike, but yes, any sort of clarification and further color would be appreciated.

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

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Okay. Thanks, Matt. So just going back to your first question: even with the enriched material, I mean, the heavy rare earths separation circuits are not -- they're not high-volume circuits, so we certainly would not be considering putting in a facility -- more than one facility. So yes, we will do our heavies separation in the U.S.

As we move through, our thinking on our WA operations, the -- one of the decision points there is do we crack or do we crack and do upstream SX in WA. If we do upstream SX, that's where the SEG is produced, so we would be exporting from WA to the U.S. for further processing. If all we do is crack, then we would continue to have upstream processing in Malaysia and -- upstream SX, sorry, in Malaysia, in which case the SEG would come from Malaysia to the U.S. operation.

In terms of where we're at, the reason why we've decided to do this via the joint venture with Blue Line is that Blue Line have a site. Any time that you can build brownfields, as opposed to greenfields, is very attractive. So during the quarter, I actually went to the U.S. I visited the site. I met with some of the local council in particular and other regulators.

And the fact that we're doing it as a JV means that we do have on the ground our partner Jon Blumenthal, who owns Blue Line, who has been a customer and a partner in supply chain with us for some time. He is an American. He does live in Texas. He is engaged with the local politicians and the local senators, and so really doing this with a local partner gives us a lot of benefit in terms of that engagement and being able to continue to move things forward.

We have a very small internal team who is working on design and then that will develop into the engineering plan. They are well progressed. And they've spent some -- quite some time actually at the location in Hondo, which is just near San Antonio. We understand where on the site we're going to be looking to put this and what of the existing equipment we'll be able to use and what we'll need to build and all of those sorts of things.

So I would expect that -- by the end of this calendar year, that we will be providing the market with a lot more detail on this, but work is progressing very positively at this time.

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Operator [42]

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Your next question comes from the line of Daniel Morgan from UBS.

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [43]

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Amanda, I've just got a follow-up question, I guess, on the U.S. It seems that the U.S. Department of Defense or the Pentagon has asked the rare earth industry or miners in the U.S. to describe their development options. And there's potentially talk of various assistance mechanisms that the U.S. government might provide given that the U.S. is short. Rare earth does not have downstream processing.

Just wondering how you see this as whether an opportunity through the Blue Line JV. Is this something where you might be involved in that? Or is it a threat where there might be some other rare earth aspirants in the U.S. that might attract funding and support and undermine your position as a dominant global producer at the moment?

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

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We think it is excellent that the U.S. government and the Department of Defense understands the importance of developing further rare earths supply chain capability. The -- I think that what we saw within 2011, with the rare earths prices at that stage, that you had a variety of different responses.

The Japanese government has -- chose at that time, and it was the only one out of sort of the various Western markets, chose to fund Lynas. And the outcome is that, 6 years on, Japanese industry has security of supply and the Japanese industry in this sector is growing. So Japanese rare earths processing sector has grown by 60% over the last -- since 2012. And that directly tracks the growth of Lynas as a supplier.

I think that, last time around, the -- when there was sort of the rare earths crisis, the U.S. responded via the WTO but didn't respond with deliberate strategies to improve operations within the U.S.

I think this time around that, that realization is very clear within the U.S. government. I think that the understanding that the U.S. government does not want to be relying on any of the unaligned -- or what they have termed as the unaligned states for supply into key either defense or industrial supply chains is very clear. So we see the DoD notification as really positive. And we see it as an opportunity, not a threat. Does that work?

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Daniel Morgan, UBS Investment Bank, Research Division - Director and Analyst [45]

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It's a good answer.

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Operator [46]

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(Operator Instructions)

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Amanda M. Lacaze, Lynas Corporation Limited - MD, CEO & Director [47]

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Okay. So shall I say -- maybe we've pretty much exhausted it. And we're about 3 minutes from the hour, so I think that maybe I'll just finish by saying thank you, everybody. And I look forward to seeing you all again soon.

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Operator [48]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.