The wheels are screeching on the only Rare Earth Metals miner outside China: Lynas Corporation. Like your neighbor’s problematic child who breaks nearly every console in your house, but your child cannot afford to play without, such has been the case of Lynas Corporation, the Australian mining baby to Malaysia. The Rare Earth oxides miner having had invested in close to a staggering US$800 million in its Malaysian rare earth metals processing plant is facing a grievous challenge to its social license to operate coupled with deep speculative market gesture associated with the USA-China trade earthquake.
Lynas Corporation has tried to water down this market speculation that may cause a rupture in rare earths prices after China raised fears about cutting off supply to the United States. The environmentally destructive nature of the associated extraction methods have recently seen China embarking on a crackdown of its own miners, Thailand also banning importing e-waste to which rare earth metals are extracted, a move that gave a breath of life into Lyna’s survival and subsequent survival of the company which went on to cement its position through disciplined management by its CEO and Managing Director, Amanda Lacaze. It wasn’t long before the same crackdown descended on the company by the Malaysian government through its Atomic Energy Licensing Board.
The May 2018 elections in Malaysia saw the appointment of one long time Lynas critic, Mr Wong Tack, an environmental activist and MP in the new government being quoted in August 2018 saying that both the executive and parliamentary branches of Malaysian government would soon begin inquiries into the environmental impact of Lynas Corporation’s rare earths processing plant on its east coast, as the region cracks-down on e-waste with another critic Fuziah Salleh a third term parliamentarian citing “inter-generational justice” and “sustainable investments”. The Lynas Advanced Materials Plant (LAMP) on the east coast of Malaysia has long been the focus of residents and environmental protesters who are concerned about the management of low-level nuclear waste generated during processing. The government believes the residue could be hit by major flooding or other natural disasters, thereby posing a significant risk to surrounding communities and the environment. This became the genesis of the woes that put everything about Lynas in the spotlight and the probing’s that followed.
Lynas has always defended its waste management policy at LAMP, saying radioactive run-off is diluted to safe levels before being turned into other by-products, such as soil fertilizer. After meeting with Malaysian Prime Minister Mahathir Mohamad in 2018, Lynas CEO indicated, “There’s a number of important personalities in Malaysian politics and it’s important that they all understand the truth and the facts about Lynas.” However, a decision was made in December 2018 by the government to force Lynas to remove all the 450,000 metric tonnes of radioactive waste from Malaysia as a pre-condition for future licenses to operate. Meanwhile, the ongoing feud captured the attention of the Japanese government and business that rely on the minerals for powering its economy.
The company saw its quarterly profit falling 24% to A$ 84 Million ending December 2018 to which Lynas CEO indicated in January 2019 that the slowdown in economic activity in China resulting from US-China trade tensions, which has depressed global prices for rare earths was going to be a temporary blip. The trade war in discussion has since elevated to a higher level.
Whilst neck deep in the doldrums of its battle with the Malaysian government, from a distance, Westfamers has been crafting a bid that it thought would easily melt and force Lynas to abdicate rare earth metals mining considering its seasoned Malaysian social license drought. Lynas produces a material, Neodymium and Praseodymium (NdPr), which is a key ingredient in Electric Vehicles (EV’s). Since USA is leading on the development of EV’s. “Every new Tesla that rolls down the street needs two kilograms of NdPr to run, and every new wind turbine needs about 150 kilos [of NdPr],” Dylan Kelly, a mining analyst with investment bank CLSA was quoted saying.
In March 2019, the A$40 Billion valued Westfarmers pounced on the vulnerable Lynas Corporation with a weak A$1.5 Billion bid, a move that saw the dozing Lynas share price exponentially jumping 35% in March but was rejected a day after. “An investment in Lynas leverages our unique assets and capabilities, including in chemical processing, and will deliver Lynas’ shareholders with an attractive premium and certain cash return,” said Wesfarmers managing director Rob Scott. This saw potential buyers popping from all over but a Westfarmers buy was sensible as it came with some chemical expertise.
What followed was a seesaw of the Lynas share price with the Malaysian government dealing another blow to whomever wanted to acquire Lynas and their ability will have to agree to extract the waste first before processing. The ability to service the US market independent of the China market saw Lynas joining hands with Texas based Blue Line Corporation to set up a rare earth metals separation facility in the USA. The company has since came up with a plan to build a permanent disposal facility despite the ultimatum to send back the stash of residue back to Australia.
On Tuesday, Lynas on Tuesday told shareholders that it would relocate a planned processing facility from its Kuantan operations in Malaysia, to its operations in Western Australia at a Capital cost of A$500-million
The future of social license is becoming more riskier and mining companies are not prepared to meet dynamic environmental and social needs for future mining activities. Strategies and technology will need to be changed to ensure compliance and avoid costly impacts of breeches. Already, companies like Vale, BHP, are paying heavily for leaving loose ends untied and subsequently instead of setting trails for upcoming smaller miners, trails huge lawsuits are all over their backs with huge financial prices.