How a rare earths shock lifted Australia’s Lynas Corp

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Analysts say Australia’s reserves of obscure metals with highly prized properties could make it one of the world’s leading producers in just a few years. (AFP)
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Lynas Corp’s Mount Weld operations boasts one of the world’s richest deposits of rare earths, crucial for computer manufacturing. (Supplied)
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Updated 18 December 2019

How a rare earths shock lifted Australia’s Lynas Corp

  • The US-China trade dispute has sent the company’s shares soaring

MOUNT WELD: Sprawled across a spent volcano on the remote edge of the Great Victoria Desert in Western Australia, the Mount Weld mine seems a world away from the US-China trade war.

But the dispute has been a lucrative one for Lynas Corp. , Mount Weld’s Australian owner. The mine boasts one of the world’s richest deposits of rare earths, crucial components of everything from iPhones to weapons systems.

Hints this year by China that it could cut off rare earths exports to the US as a trade war raged between the two countries sparked a US scramble for new supplies — and sent Lynas shares soaring.

As the only non-Chinese company thriving in the rare earths sector, Lynas shares have gained 53 percent this year. The shares jumped 19 percent last week on news that the company may submit a tender for a US plan to build rare earths processing facilities in the US.

Rare earths are crucial for producing electric vehicles, and are found in the magnets that run motors for wind turbines, as well as in computers and other consumer products. Some are essential in military equipment such as jet engines, missile guidance systems, satellites and lasers.

Lynas’ rare earths bonanza this year has been driven by US fears over Chinese control over the sector. But the foundations for that boom were established almost a decade ago, when another country — Japan — experienced its own rare-earths shock.

In 2010, China restricted export quotas of rare earths to Japan following a territorial dispute between the two countries, although Beijing said the curbs were based on environmental concerns.

Fearing that its high-tech industries were vulnerable, Japan decided to invest in Mount Weld — which Lynas acquired from Rio Tinto in 2001 — in order to secure supplies.

Backed by funding from Japan’s government, a Japanese trading company, Sojitz, signed a $250 million supply deal for rare earths mined at the site.

“The Chinese government did us a favor,” said Nick Curtis, who was executive chairman at Lynas at the time.

The deal also helped fund the building of a processing plant that Lynas was planning in Kuantan, Malaysia.

Those investments helped Japan cut its rare earths reliance on China by a third, according to Michio Daito, who oversees rare earths and other mineral resources at Japan’s Ministry of Economy, Trade and Industry.

The deals also set the foundations for Lynas’ business. The investments allowed Lynas to develop its mine and get a processing facility in Malaysia with water and power supplies that were in short supply at Mount Weld. The arrangement has been lucrative for Lynas.

At Mount Weld, ore is concentrated into a rare earth oxide that is sent to Malaysia for separating into various rare earths. The remainder then goes to China, for further processing.

Mount Weld’s deposits have “underpinned the company’s ability to raise both equity and debt funding,” Amanda Lacaze, the company’s chief executive, said in an email to Reuters. “Lynas’ business model is to add value to the Mount Weld resource at its processing plant in Malaysia.”

Andrew White, an analyst at Curran & Co. in Sydney, cited “the strategic nature of Lynas being the only producer of rare earths outside of China” with refining capacity for his ‘buy’ rating on the company. “It’s the refining capacity that makes the big difference.”

Lynas in May signed an agreement with privately held Blue Line Corp. in Texas to develop a processing plant which would extract rare earths from material sent from Malaysia. Blue Line and Lynas executives declined to give details about cost and capacity.

Lynas on Friday said it would submit a tender in response to a US Department of Defense call for proposals to build a processing plant in the US. Winning would give Lynas a boost to develop the existing plant at the Texas site into a separating facility for heavy rare earths.

James Stewart, a resources analyst with Ausbil Investment Management Ltd. in Sydney, said he anticipated that the Texas processing plant could add 10-15 percent to earnings annually.

Lynas was in pole position for the tender, he said, given that it could easily send material processed in Malaysia to the US, and convert the Texas plant relatively cheaply, something that other companies would struggle to replicate.

“If the US was thinking about where best to allocate capital,” he said, “Lynas is well and truly ahead.”

Challenges remain, however. China, by far the leading producer of rare earths, has stepped up production in recent months, while declining global demand from electric vehicle makers has also driven prices down.

That will put pressure on Lynas’ bottom line and test the US resolve to spend to develop alternative sources.

The Malaysia plant has also been the site of frequent protests by environmental groups concerned about the disposal of low level-radioactive debris.

Lynas, backed by the International Atomic Energy Agency, says the plant and its waste disposal are environmentally sound.

The company is also tied to an operating license that expires on March 2, although it is widely expected to be extended. But the possibility that more stringent license conditions could be enacted by Malaysia has deterred many institutional investors.

Highlighting those concerns, on Tuesday, Lynas shares fell 3.2 percent after the company said an application to increase production at the plant failed to get approval from Malaysia.

Still, Lynas says it sees great long-term potential for the niche it has carved out.

“We will continue to be the supplier of choice to non-Chinese customers,” Lacaze told the company’s annual general meeting last month.

BT warns UK that banning Huawei too fast could cause outages

Updated 13 July 2020

BT warns UK that banning Huawei too fast could cause outages

  • Prime Minister Boris Johnson is due to decide this week whether to impose tougher restrictions on Huawei
  • British PM in January granted Huawei a limited role in the 5G network

LONDON: BT CEO Philip Jansen urged the British government on Monday not to move too fast to ban China’s Huawei from the 5G network, cautioning that there could be outages and even security issues if it did.
Prime Minister Boris Johnson is due to decide this week whether to impose tougher restrictions on Huawei, after intense pressure from the United States to ban the Chinese telecoms behemoth from Western 5G networks.
Johnson in January defied President Donald Trump and granted Huawei a limited role in the 5G network, but the perception that China did not tell the whole truth over the coronavirus crisis and a row over Hong Kong has changed the mood in London.
“If you are to try not to have Huawei at all, ideally we would want seven years and we could probably do it in five,” Jansen told BBC radio.
Asked what the risks would be if telecoms operators were told to do it in less than five years, Jansen said: “We need to make sure that any change of direction does not lead to more risk in the short term.”
“If we get to a situation where things need to go very, very fast, then you are into a situation where potentially service for 24 million BT Group mobile customers is put into question — outages,” he said.
In what some have compared to the Cold War antagonism with the Soviet Union, the United States is worried that 5G dominance is a milestone toward Chinese technological supremacy that could define the geopolitics of the 21st century.
The United States says Huawei is an agent of the Chinese Communist State and cannot be trusted.
Huawei, the world’s biggest producer of telecoms equipment, has said the United States wants to frustrate its growth because no US company could offer the same range of technology at a competitive price.