Ground Breakers: Lynas back in form, OZ hits copper record

Lynas sees recovery in rare earths production after water woes at Malaysian processing plant
COO Pol Le Roux says magnet demand from EVs will be strong, but whether West can compete with China remains to be seen
OZ Minerals sees rising copper production costs in 2023

Lynas Rare Earths (ASX:LYC) has returned to form, lifting in morning trade after posting a recovery in rare earths production from its Malaysian processing plant.

Lynas saw its production of rare earths fall from 4209t and its output of magnet rare earths NdPr oxide drop from 1359t to 1045t in the September quarter as a result of an acute water shortage at its Kuantan site.

But that recovered substantially in the December quarter, lifting to 4457t of total rare earths oxides and 1508t of NdPr, with sales revenues rising from $163.8m to $232.7m.

Capex, exploration and development payments rose from $97.8m to $141.9m, prompting a drop in its closing cash and term deposits to $934.2m, but that was also impacted by timing of deliveries, with some customer receipts to come through in the March quarter.

Lynas says market prices have increased since December ahead of Lunar New Year and expectations of an economic recovery in China, with flat prices for NdPr of US$83/kg across the quarter aided by higher prices for SEG and new lanthanum-cerium specialist products on top of the main NdPr offering.

Lynas COO Pol Le Roux said market demand for magnet rare earths, important for electric vehicle and wind turbine production, remains stronger than supply, with Lynas yet to contract out increased volumes from its 2025 expansion of the Mt Weld mine near Laverton in WA, which will be supported by a new cracking and leaching plant in Kalgoorlie.

“We just have a queue of OEMs, lots of discussion ongoing with them for securing the supply of rare earths,” Le Roux said.

“In addition to that anyone who has a project for magnet making outside China, today comes to Lynas because we are the only ones supplying outside China.

“So all in all, we are not short of demand, we just say we are short of supply but that’s not a problem as well.”

A recovery in semiconductor supply has improved demand from the automobile sector, Le Roux said.

Le Roux said absent of a global financial crisis, double digit growth in magnet demand from EVs is expected to continue over the next five years, but he warned the West has a lot of catching up to do when it comes to its one-sided race against China.

“The question being where will demand come from? Is it from China or is it from outside China and that’s the game that is being played at the moment … and there is a lot to do in the West to not lose this fight against China, and that is that is yet to be seen,” Le Roux said.

“We see a lot of announcements of new magnet projects (but) so far outside China, I’ve seen only one new factory in Vietnam — Fujitsu — but that’s an existing magnet maker. And that’s a very excellent customer of Lynas. But that’s the only one which did actually increase production outside China so far, so we’ll see.”

With that in focus, Lynas boss Amanda Lacaze has faced questions on whether Lynas, which is yet to pay a dividend, could expand downstream into magnet production, currently heavily concentrated in China where more than 80% of the rare earths industry is based.

“In terms of do we get into further downstream activities, we have a continuing watching brief on that and have done quite a lot of work really on what are the opportunities, what that might look like, how could they be executed,” she told analysts on a conference call.

“Right now and the last time we did sort of a full review on this, we can get bigger bang for our buck (and) for our shareholders by increasing output than we can by diverting attention into some of the downstream activities.

“One of the hallmarks of our success is that we focus on doing things, completing them, and then moving to the next one. So right now we have a very, very full agenda with the Mt Weld expansion, with Kalgoorlie, with the further development as the Malaysian facility, with the US.

“But yes, we have work ongoing with respect to downstream development, which we will brief at an appropriate time.”

Lynas Rare Earths (ASX:LYC) share price today:

OZ hits record, but warns on costs and projects

OZ Minerals (ASX:OZL) is trundling into a scheme which will see $9.6 billion of cash pass into the hands of shareholders from the well-lined pockets of BHP (ASX:BHP), the world’s biggest miner.

The mining giant completed due diligence late last year and found no nasties, but the copper miner’s probably penultimate scheme may have raised some butterflies in the stomachs of BHP investors with record copper output balanced by major warnings of cost escalation at its Prominent Hill and Carrapateena copper and gold mines.

OZ delivered 36,307t of copper metal and 54,856oz of gold in the December quarter, finishing the year with 124,025t of copper and 211,147oz of gold output at all in sustaining costs at the upper end of its US175-195c guidance of US189.7c per pound.

While lower in Q4 at US186.7c compared to Q2 (US210c) and Q3 (US190.4c), costs could escalate as much as 9% next year, with new guidance for 2023 set at 120,000-143,000t of copper and 191,000-213,000oz gold at US187-207/lb.

The production ramp up of OZ’s Prominent Hill Wirra shaft has also been put back from the first half of 2025 to the latter stages of the 2025 calendar year.

One of the key concerns is the end of long term contracts for electricity at OZ’s Australian assets, which have led to exposure to higher costs under market rates.

“As you said it’s a 60% increase in our power charges over all. I think we’re likely to see some variation between quarters,” OZ CFO Warwick Ranson said in response to questions from analysts today.

“Right now we’re certainly paying the spot market, so it’s at a lower level, but we’ve catered for an average in terms of our guidance through the year.

“We’ll probably see some fluctuations … we tend to see higher power charges come through in the cooler months of course. That’s added probably around 17c to our C1 costs, so that’s been one of the major uplift factors.”

Foreign exchange was also a major contributor, Ranson said.

An independent expert’s report is currently being prepared on the BHP deal ahead of a mid-April shareholder vote. Copper prices have risen since BHP launched its first bid in August last year from around US$7500/t to over US$9000/t, with gold prices crossing above US$1900/oz in a positive start to 2023.