Transcription of Finance News Network Interview with Lynas Corporation Limited (ASX:LYC) Executive Director, Nicholas Curtis. Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me today from rare earths developer Lynas Corporation
(ASX:LYC) is Executive Director, Nicholas Curtis. Nick, welcome to FNN. First up, can we get to your Mt Weld rare earths deposit in Western Australia, which you refer to as, ‘the richest known deposit of rare earths in the world’. What is the size of the resource and what does it contain?
Nicholas Curtis: Well it is in fact, the highest grade deposit known in the world. The size of the resource as defined now is really the central piece of a very large system. But that central piece contains about 14 million tonnes of material at an average grade of about 8-9%. All up, the important issue is there’s over 2 million tonnes of contained rare earths oxides in there.
Lelde Smits: First ore was delivered to the mill in May, what’s happening now?
Nicholas Curtis: Well that was a very important step for us, it was a major milestone because obviously we need to beneficiate. We need to upgrade the material from the grade of the ore to get it to a transportable shipment, and that was a process that we’ve developed over years. That has proven to be successful, we’re now getting approximately 68-69% recovery out of the mill which is above design capacity, in fact. That mill is operating, our concentrator is operating, not at full capacity because it needs to be synchronised with the Lynas Advanced Material Plant (LAMP) construction, the LAMP plant in Malaysia which will take that material and refine it.
Lelde Smits: Now I also note you’ve completed a feasibility study for the concentration plant expansion. Did you want to elaborate on that?
Nicholas Curtis: We were originally just going to go serially if you like and wait for market demand and get cash flow, and then double. However, the demand for rare earths in the last 24 months has become so intense and the situation – I wouldn’t call it a crisis situation, but some people call it a crisis situation of demand, particularly in the Japanese market - led to the Japanese Government offering us the money to double our plant earlier. We did a very successful funding transaction with a group called Sojitz who are a Japanese privately owned trading group, but funded by MITI, an arm of the Japanese Government. And that has enabled us to double the plant and that’s ongoing now.
Lelde Smits: Now to your Advanced Materials Plant in Malaysia, where processing concentrate from Mt Weld will occur. When will the plant be completed and operational?
Nicholas Curtis: Well we currently anticipate completing the plant in the first quarter of 2012. We anticipate ramping it up through the first half of
2012, so that Financial Year 2013 we’re able to extend it to its full capacity of about 11,000 tonnes of rare earths oxides a year.
Lelde Smits: And has the plant come in on budget?
Nicholas Curtis: Yes, substantially yes. It’s been a little bit delayed, it’s a big complex plant and the first of its type globally, outside of China.
Lelde Smits: So to licensing now, when do you expect to secure the pre-operating licence?
Nicholas Curtis: Well I wouldn’t like to pre-empt the Malaysian Government’s position on this. We’ve submitted all the relevant documents to the Regulatory Authority in Malaysia. We agreed back in April when the issue really came up with the Government, to a process by which they would not issue us a pre-operating licence which is normally issued as a standard issue, until such time as a full review had been done of all the issues associated with that. They called in the International Atomic Energy Agency to review it, just not to be a regulator but just to give a reinforcement of the safety. It’s a perfectly safe plant as reviewed by all the regulators and we just have to comply with some of the things the International Atomic Energy Agency suggested should be improvements. We’ve done all the documentation; we’ve submitted all that, it’s with the Atomic Energy Agency Licensing Board of Malaysia and we await their outcome.
Lelde Smits: Very promising to hear, but the Advanced Materials Plant has had its share of opposition. What do you believe are the protesters main concerns and what has Lynas done to address them?
Nicholas Curtis: The specific protesters main concerns are essentially built on misinformation and misunderstanding. They compare this plant – they, who’s they, A political group in the Kuantan area politicise the issue and compare the plant to a nuclear reactor. And of course, in the wake of Fukushima that created a lot of fear within the community. There are legitimate questions to be asked about the regulatory approval process, it’s of the highest standard and that was confirmed by the International Atomic Agency.
This is not a nuclear plant; this is a plant that takes in material like many industries that contains some thorium in the material. The fertilizer industry, the oil industry, all deal with the same thing, it’s very common. The material does not need to be regulated in Australia or any other jurisdiction as a radiological material. But of course, because of the past experience in Malaysia from a different material, some parallels were drawn to the Asia rare earths plant back in the 1980s in Malaysia. And I think the issue was intensely politicised. We underestimated the degree to which we needed to deal with community concerns. We, as many mining and chemical companies do, felt the facts should speak for themselves. We needed to do a lot more explanation of the facts to the community. We spent nine months doing that, we feel the community is now aware and substantially more relaxed with the issue than they were at the beginning of the year.
Lelde Smits: Right, so if we can now look at your $US4 million purchase of the Kangankunde tenements in Malawi. You’ve recently let the market know of potential legal action from a previous owner contesting ownership. Have you been served any documents in relation to court proceedings?
Nicholas Curtis: We are not any party to any actions in Malawi. This matter is entirely a matter for the claimant against the Malawi Government. The claimant claims that the Malawi Government should not have cancelled his original exploration licence, which it appears he did not do any work on the property. And therefore, it appears under the Regulatory Environment of Malawi, that they legitimately – the executive arm of government the Minister of Mines, could legitimately transfer Title, as you could in Australia. However, he claims that that was not an appropriate cancellation of licence – a matter between him and the Government.
Lelde Smits: So is Lynas in discussions with the Government to resolve the issue?
Nicholas Curtis: We’d love to see the issue resolved. It’s not really a matter that concerns us too much because we have a legal Title to the Kangankunde deposit.
Lelde Smits: So if you’re saying you have clear Title, are you then free to progress with development?
Nicholas Curtis: We are in fact progressing the deposit in Malawi. We have drill rigs booked to start drilling programmes very soon; we’ve been active in community talking to the community and getting them to understand what we’re doing. The deposit was found in the early 1980s and had significant work done, but the work needs to be verified again, so we’re embarking on that verification programme. We think this is an asset to be developed in the 2013-14 period.
Lelde Smits: So considering all goes to plan for Kangankunde, what are your plans for the project?
Nicholas Curtis: We need to drill it; we need to establish that the metallurgy is in fact in accordance with what the reports have said it was earlier. And once we’ve established that, we will in fact move forward to developing a concentration plant there and then we’ll see what we’ll do with that concentrate. Ultimately the refinery in Malaysia in some form or another - I call it the refinery - the LAMP in Malaysia, should be the recipient of the material from Malawi in order to process it into rare earths oxides, that are contained in that material.
Lelde Smits: But you’re confident it belongs to you?
Nicholas Curtis: Oh we’re totally confident it belongs to us, yes.
Lelde Smits: Now you’ve just returned from a rare earths conference in Hong Kong. What is the long term outlook for rare earths demand and
prices?
Nicholas Curtis: I think the interesting thing about the conference in Hong Kong was that there’s a new reality about the rare earths industry. There has been a little bit of euphoria about rare earths over the last eighteen months or so, and I think there’s a new and sound reality in the market. That is to say these are tough projects to get up and some of the juniors, particularly in the macro economic climate and the risk averse climate that’s around today, are going to take quite a long time to get their projects up. That should and will lead to a continued structural deficit in the market, where demand should exceed supply for a significant period of time to come. That certainly was reinforced, that there will be an ongoing demand need.
Lelde Smits: But prices have taken a hit this year, where do you forecast them going?
Nicholas Curtis: Yeah prices have taken - I like that statement that prices have taken a hit. Prices went up about 300% and came back by a third, and people are worried about the third retracement. But if you actually calculate what a third of 300% is, it’s 100% and many prices are still up 200% on where they were at the beginning of the year. The pricing environment for rare earths, for a producer of rare earths, is very satisfactory and we believe will stay so for a number of years to come.
Lelde Smits: China currently has a hold of about 95% of the rare earths market, do you see any change in sight?
Nicholas Curtis: Well we think China is reviewing very seriously its industry at the moment. We note that the major producer in China shut down for one month recently. We know that there are new environmental standards that are being pushed through the Chinese industry. And we know the Government regulators in China are really taking seriously, getting control of this issue in this industry. And we believe that China’s capacity to produce, will be limited to around 100,000 to 110,000 tonnes against a global market demand today of about 130,000 tonnes. We think the global market demand by 2015 will exceed 170,000 tonnes. We don’t think China has the capacity to respond to that. Therefore, new production will be required to respond to that and naturally China’s share in the market will diminish accordingly.
Lelde Smits: Certainly. So as you move closer to becoming a rare earths producer, what progress have you made in securing customers?
Nicholas Curtis: We have approximately 70% of our total production sold; we aim to go about 90%. That is phase 1 and phase 2, that is 22,000 tonnes of production. We think we’ll achieve that well into the early part of next year. We are very, very confident we’ll be able to secure sales and finally after ten years, get some cash flow into the Company.
Lelde Smits: So could you put a value on the deals you’ve secured?
Nicholas Curtis: Well I won’t put a value on the deals but if you take 70% of 22,000, it’s about 14,000 or 15,000 tonnes per annum of rare earths
oxides at an average price of $100 a kilo, that’s about $1.5 billion a year. These contracts are between three and ten years, so it’s a very substantial committed amount.
Lelde Smits: So when would Lynas be likely to start receiving those funds?
Nicholas Curtis: Starting in the second quarter of next year.
Lelde Smits: So Nick, what’s next for Lynas in 2012?
Nicholas Curtis: Lynas is going to continue to stay in the rare earths space. It’s going to continue to expand its relationship with major users. Things like our letter of intent with Siemens, where we’re supporting them in building a magnet factory to use more rare earths. We’re going to continue to work with significant industrial users of rare earths, to secure their needs in rare earths and make them use more and more rare earths in the future.
Lelde Smits: Thanks for your time Nick and all the best for the next stage in the Lynas story.
Nicholas Curtis: Thanks.
ENDS
