Ground Breakers: Lucky Lynas secures extension to avoid suspension at Malaysian rare earths plant

Lynas shares surge more than 10% as Malaysian authorities provide six-month reprieve on cracking and leaching ban
Lithium miners lead strong morning for materials sector as brokers turn positive on second half upside

Counting their lucky stars today are investors in Lynas Rare Earths (ASX:LYC) who could see their company avoid a potential shutdown after the Malaysian Government extended its licence to operate the Kuantan plant’s cracking and leaching functions until the end of the year.

It is a six-month stay of execution which will enable Lynas to begin the ramp up of a new $575 million plant in Kalgoorlie in WA, near its world class Mt Weld mine, before the end of the activity in Malaysia.

The import of lanthanide concentrate by Lynas has long faced protest in the South East Asian country.

Cracking and leaching generates low level radioactive waste as a by-product, something Lynas and boss Amanda Lacaze have routinely maintained has been disposed of safely.

But new conditions imposed at the update of its licence in February 2020 set a deadline of mid-2023 for Lynas to cease the major processing step and move it offshore.

Malaysia has faced pressure not just from the company and the local community where it operates, but also from governments like Australia and Japan, one of Lynas’ main backers and customers.

Rare earths, especially Lynas’ top earning product neodymium-praseodymium, are used in the production of permanent magnets.

These are placed in the motors of electric vehicles and used in high-tech applications like defence, aerospace and wind turbines.

China is the dominant producer of rare earths and downstream products, controlling over 80% of the global supply chain.

~$7 billion capped Lynas, with its massive resource and significant corporate heft, is therefore a strategic asset for the West.

Lynas says the change, which came after appeals to a decision not to amend its licence conditions, was made by the Ministry of Science, Technology and Innovation, or MOSTI, in Malaysia. Other appeals have been dismissed.

It will enable Lynas to operate in Kuantan without a shutdown until at least the end of 2023.

The company insists expert recommendations remain on its side.

“Lynas had applied to the MOSTI Minister for the removal of the conditions which limit operations at the Lynas Malaysia facility as they represent a significant variation from the conditions under which Lynas made the initial decision to invest in Malaysia,” it told the market today.

“Further, the conditions do not follow the recommendations of the Malaysian Government’s 2018 Executive Review Committee report on Lynas Malaysia’s operations, the Atomic Energy Licencing Board’s own audits of Lynas Malaysia’s operations or any of the 3 prior independent expert scientific reviews of Lynas Malaysia’s operations.”

Lynas shares were up 10.56% this morning.

More joy for lithium stocks as brokers turn bullish

Lithium prices have fallen under the weather in China this year, but a hint of a reversal and scent of the bottom has sent lithium investors piling back into your favourite battery metals stocks.

Pilbara Minerals (ASX:PLS), IGO Limited (ASX:IGO), Mineral Resources (ASX:MIN), Allkem (ASX:AKE) and Liontown Resources (ASX:LTR) were all up big this morning as the materials sector lifted 1.4%.

Liontown, notably, has surged to a record $2.91 as shareholders continue to bank on a new and improved offer from either Albemarle or a third party to acquire the WA lithium developer. It is thought to be happy to entertain offers above $3, well in excess of the $2.50 it knocked back from Albemarle in March.

North Asian carbonate prices rose $2 to $31/kg on Friday, according to Fastmarkets, with Chinese carbonate and hydroxide prices up around 18% and 12% on the week respectively.

Prices had dropped over 50% YTD as Chinese demand has waned.

A Morgan Stanley note on Friday suggested refining margins were improving, and said there was now upside risk to its second half price target for Chinese lithium carbonate of $25/kg.

Canaccord also said in a note Friday that recent lows were not sustainable or reflective of the overall market and outlook, with analysts led by Reg Spencer saying potential for price rises in the second half could prove a catalyst for shares.