Lynas Rare Earths: Jobs and 'Hot' Waste

Last week rare earths producer Lynas Corporation (LYSDY:  OTC/QB) joined any number of durable goods manufacturers throwing in the towel.  Lynas is halting production at a plant in Malaysia where the company separates rare earth metals from aggregate.  For the most part Lynas’ Malaysia facility processes concentrate from the company’s Mt. Weld Central Lanthanide deposit in Western Australia.  It was a bold move given that the Malaysia plant has been processing Mt. Weld rocks for the last seven years, representing a significant portion of Lynas’ annual production.  

The Malaysia plant is located near Kuantan. Lynas gets access to a deep-water port there as well as a well qualified labor supply.  The plant employs 600 people.  Shuttering the rare earths plant and idling 600 people will not go unnoticed in Kuantan with its population near 525,000.  It is not just the employees who are chewing their knuckles.  Lynas is not without its detractors who have a critical eye on the company’s operations.

Lynas Rare Earth Plant, Malaysia

Located on the east cost of the Malaysia peninsula, Kuantan is the capital of the state of Pahang.  There is a lengthy history of mining in the area with the Chinese setting up tin mines in the late 1800s.  Petrochemical companies have also set up shop in Kuantan, including Eastman Chemical and W.R. Grace, among others.  Besides these loci of practical experience the University of Malaysia Pahang turns out graduates mostly in engineering and technical fields.  The loss of jobs, even if only temporarily, will be keenly felt in Kuantan.  

It is extraordinary how a tiny little virus can change the entire world!  Just a few months ago industry analysts were warning of how China, which is the supplier of at least two-thirds of the world rare earth supply, could use its materials as a weapon in the trade war with the U.S.  Talk of trade war has disappeared as the world grapples with issues in gaining adequate supply of medical ventilators.   

There is more to the picture than China dominating the rare earth market.  The supply chain in this industry is on the complex side with the U.S. providing almost as much concentrate with rare earth content as it imports from China in the form of finished rare earth materials.  This is largely due to the complexity of the processes needed to coax rare earths out of the rocks and soil where they are found.  Those 600 employees of Lynas are kept busy cracking and leaching as well as extracting solvents and then ‘cooking’ as a final touch.  Processing capacity is not taken lightly, requiring considerable planning and investment.

Only time will provide answers to questions about the rare earths market in the future and Lynas’ place in it.  Demand in the near-term has certainly been disrupted, but recovery seems more likely than not.  There is the potential for shifts and adjustments that could change the competitive dynamic.  Given how expensive and time consuming it is to bring new capacity online, it would seem Lynas’ Malaysia plant will have a place in the rare earth sand box.  That prognosis lends to an investment strategy when recovery appears to have gained traction.

Lynas may end up moving out of Kuantan anyway.  In late January 2020, three residents of Kuantan filed for a judicial review of the Malaysia government decision in August 2019 to renew Lynas license to operate the rare earth facility. 

The renewal application had been reviewed by the International Atomic Energy Agency as well as a scientific committee, giving   However, at issue is a requirement set down by the Malaysia Minister of Energy, Science, Technology, Environment and Climate Change pursuant to the country’s Atomic Energy Licensing Act of 1984.  The act requires Lynas to remove from Malaysia the radioactive waste that is in water leached during a purification process.  The energy and science minister had previous held that Lynas could ship out its waste or simply ship out entirely. 

It would seem that in a country highly dependent upon foreign operations for jobs, it is the jobs that count, even if there is a bit of trash left in the corner.  The matter is now in the hands of Malaysia’s High Court in Kuala Lumpur.      

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.