Lynas Rare Earths Limited (LYC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Lynas Full Year Results Briefing. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lynas. Thank you. Please go ahead.

Good morning and welcome to the Lynas FY '20 Results Investor Briefing. Today's call will be presented by CEO, Amanda Lacaze. And Amanda is joined by CFO, Gaudenz Sturzenegger; General Counsel and Company Secretary, Andrew Arnold; and VP Downstream, Pol Le Roux. Due to legal restrictions, we're unable to discuss the process or details around the equity raising announcements other than the terms referred to in the announcement. Please refrain from asking questions about the specific details of the equity raising as we are legally restricted from answering those questions on this call. I'll now hand over to Amanda. Please go ahead, Amanda.

Good morning, everybody. It is a pleasure to join you from a very delightful sunny day in Sydney, and thank you. Busy day for us today. But today's meeting -- this call is all about looking at our results in the year just passed. And it's a chance to reflect on that year. And -- I don't know. I think I've turned to new -- I've coined a new phrase. Instead of dog years, we've got COVID years because some of last year seems a very long time ago. But it was a very busy and a very productive year. And much of our work was about ensuring that we had foundations in place for future growth. It was a year of 4 quarters, 2 of them very strong, 2 not so strong. And despite the low prices, our performance in quarter 1 and quarter 3 shows the underlying business strength, even as markets were somewhat difficult. So just looking at those, if we particularly look at quarter 3, even with 10 days lost production due to the Movement Control Order causing us to shut down the plant in Malaysia and 14 days of a slow ramp-up from the December temporary production halt, we still recorded the highest-ever NdPr production in quarter 3. And this really is a reflection of improved capability as a result of our Lynas NEXT capacity building initiative. Certainly, whilst the 44 days lost production affected the latter part of quarter 3 and quarter 4, I would balance that against the fact that Malaysia's response to the COVID-19 pandemic has been really excellent in its effect. And that, as always, the confidence of managing that process has meant that business has been able to come back to pretty close to normal operation with, of course, the additional health and hygiene protocols in place, but very much business as usual. We are fortunate as a business that during the shutdown period, we were able to avoid the big costs associated with our business, and this is particularly things like our reagents in the business and, of course, other utilities. We were pleased to be able to continue to pay our people during this period of time. And whilst we only had a skeleton staff, the safety and maintenance purposes in Kuantan, we were able to continue operations at Mt Weld, where mining was designated as an essential industry, once again with relevant health and hygiene protocols in place. We used -- and I mentioned this on the quarterly call a few weeks ago. During that time, we used our time wisely. Certainly, the economic effects of COVID has caused us to revisit our plant production profile. And as I indicated then, we restarted at about 70%. We're now running at 75% of Lynas NEXT rates. And I would just remind everybody who's been with us on this journey that, that is actually equivalent to the original nameplate for our facilities, yet we are running it with only 75% of our assets in use. So that means that we really have captured some of the reliability benefits that we were aiming for as part of the Lynas NEXT program. And it also means that we are able to substantially capture the cost efficiencies, which are associated with volume. It also gave our teams the opportunity to do some really excellent work, revisiting all of our cost lines, all of our operating parameters, and ensure that as we started up, we started up with sort of best possible performance. At -- the 75%, as we've noted in the results presentation, we are pretty close to market demand at this stage. And it ensures that we're not bringing any supply side pressure into the market, whilst being able to operate very cost effectively and profitably for our own business. As I said earlier, much of the work in 2020 was about making sure we had strong foundations in place for future growth. We maintained a very strong focus on safety. We were pleased to record a further reduction in the 12-month rolling lost time injury frequency rate. And of course, we were very pleased in August to have recorded 461 days lost time injury-free in our Malaysian facility. We have -- we were -- as many minerals and industrial companies have been able to do, we have strong safety systems, so we were able to drop in the additional health and hygiene protocols required to manage within the pandemic environment in a way which is safe for our people. And even with the COVID pandemic, we retained our commitment to communities. We had distributed PPE and other care packs into our communities, including food stuffs in Malaysia. And we have ensured that we've put in very strong protocols in Laverton to ensure careful separation of our people from the community, which, of course, is a high representation of indigenous people. So we have a strong foundation of the -- for the future with improved productivity from our existing assets. Some of the other achievements, which are set in COVID years and quite a long time ago, in terms of regulatory outcomes in Lynas Malaysia, the operating license was renewed for 3 years from the 3rd of March. The conditions associated with that are very clear, and we're confident that -- of our ability to satisfy those conditions. And most recently, we have announced the approval of the site for the permanent disposal facility, subject to finalization of various studies and final regulatory approvals. We have made really significant progress on the projects, which are part of our Lynas 2025 growth vision. We have our -- Kalgoorlie project team has been in place now for nearly a year and has made really substantial progress and really not skipped a beat during the pandemic. Once again, Western Australia has designated mining industry as an essential industry. And so we can -- our team continues apace. We've selected Kalgoorlie. The project's been awarded, major project status from the Australian government and lead agency status from the West Australian government. And of course, we were selected by the U.S. Department of Defense for Phase 1 of the U.S. Heavy Rare Earths separation facilities that we've previously indicated. We were going to respond to that tender. And with our partner, Blue Line in Texas, proposed the establishment of that plant. And in terms of sustainability, of course, all of our customers care about sustainability practices, ensuring that we have -- we've completed some excellent work around life cycle analysis, and external affirmation of the sustainability principles on which we run our business, including gold medal award from EcoVadis. So as I said, we're really looking at continuing to improve the productivity from our existing assets. This includes upgrades to our circuits, both in Mt Weld and also in Kuantan, including improving pretreatment processes, the inclusion of Duncan ore into our processing stream. In Kuantan, we've done upgrades, which has improved product processing and quality. And over time, we certainly want to be playing more and more in specialty rare earth sector. And I also indicated that those sites have taken advantage of the pause to revisit our costs and ensure that we are in best possible shape, particularly as we're dealing with this sort of an uncertain global economy. During the year, a huge amount of time and effort has been spent with government and regulators. The outcomes of that have included the granting of the Malaysian license to operate, the progress that we've made on the PDF in Malaysia. But it also includes engagement with other governments, chief amongst those, the Australian, Japanese, U.S., European governments on future rare earth supply chain strategy. And I've already referenced the U.S. -- the Phase 1 contract in the U.S. So despite the disappointment of the -- the hit that we took in the fourth quarter of the year, which means that our performance has not been as good as it was looking, say, on about the 15th of March if you've looked at our forecast through to year-end, so we're looking a little rosier than the actual outcome, we are very confident that we have taken the actions in 2020 that ensure we enter this decade in good shape and that we are match-fit for the future opportunities that we see for our business. So with that, I'm happy to take questions as people have them.

[Operator Instructions] Your first question comes from the line of Daniel Morgan from UBS.

So just wondering about the restructure and the CapEx envelope. In the past, you've talked about that being about $500 million to achieve it. Just wondering if you could talk to that number again. And is there any itemization you might consider regarding the full capital number?

So the $500 million, yes, we can affirm that. We've done a huge amount of work. The project team has done a lot of work now on that over the past 12 months. So when we started with that and it was sort of -- or probably well and truly, in the plus or minus, it could have been 30% or 40%. We now have locked that down with sort of line-by-line, not only estimates, but we've tested the market on sort of the key line items to ensure that our assumptions are correct. We're very pleased with the first tender, which is the kiln. It actually came in slightly lower than what we had budgeted for, which gives us a good idea for the future. The $500 million will cover the projects in Kalgoorlie and the associated upgrades in Kuantan because there's going to be slight changes in the flow sheet and also a healthy contingency associated with it. It's a big project, and so therefore, you need to make sure that you have that sort of contingency buffer. But we're very confident that we have the right people on the project. These are people who know the asset, understand where it was -- where a design was not right in 2012, 2013, where we have got it right as we've revisited that design and, therefore, how to take the best of that and make it even better for the facility in Kalgoorlie.

And Amanda, can you remind us or update us on what we are getting for the $500 million? What is the scope of the project in terms of your end capacity and different products you're going to have for that?

Yes. So it's really a step along the way. A year ago, we've presented to the market our Lynas 2025 vision. Today's facilities, we, at Lynas NEXT rates, can produce about 7,000 tonnes a year of NdPr, and our target is to produce 10,500 tonnes by 2025. The cracking and leaching facility in Kalgoorlie is a step along the way to that. And by establishing that facility, it opens up the pathway for us to actually achieve the Lynas 2025 goals. And it gives us -- the way that we will be engineering the facility gives us the ability to optimize throughput. The actual throughput will, as for any of these types of facilities, be determined by the grade of the concentrate that we feed. It will produce a mixed rare of carbonate and, therefore, Kuantan will now be configured in a way that can receive mixture of carbonate and process it.

Okay. And just on the markets, the NdPr price has been rallying recently despite what appears to be end markets. I mean you've talked about running your plant at 75% of reduced capacity due to lower demand. Just wondering what color you can give us about what's happening in the market. Or why the price is rallying from your perspective?

Yes. So Pol is on the call as well, but I'll take the question in the first instance. The -- essentially, the prices stayed very low for most of last year. And as with many markets, there's a stage where the price cannot stay low forever. But as we talk about sort of demand today, certainly, there were various shutdowns as a result of COVID. So there's not a lot of inventory sitting in the system. So that means demand is pretty steady. Whilst the automotive market, and I think there's many -- much has been written about the decline in demand for automotive, that's been most felt within the ICE vehicle segment. Hybrids and electrification, which are the areas that are driving demand for magnetic materials, which, of course, is NdPr remained steady. And indeed, some other segments, which use the materials like, for example, big block magnets, which are used in wind turbines, are really fairly buoyant. So we would see this as sort of a fairly natural progression and not inconsistent with what we've seen historically in terms of price -- pricing always tends to be stronger in the back half of the year than in the front half of the year. Pol, I don't know if you wanted to add anything more to that, but -- yes, that's really where we see the pricing at present. And I think added to that, Daniel, there's not a lot of supply side pressure actually coming through into the market at present.

Your next question today comes from the line of Andrew White from Curran & Co.

Just a couple of questions. Stepping back to what it's going to look like as you head towards 2025 on Mt Weld and the mining rate there. Obviously, you're doing a mining on a campaign basis there. Have you given much thought as to what it looks like as you head towards 2025 on changes to rates of production there?

No. Actually, Andrew, I thought we would just see how we go. Of course, we've given lots of thoughts to that.

Excellent. Can you give us a bit of color on what that looks like?

Yes. Yes. So look, I think the first thing that I would say is that when we did our last resource and reserve upgrade, we talked to the fact that we've done some additional drilling, which allowed us to significantly upgrade the reserve and the resource. But there was some of the indications from that drilling that gave us sort of a highly positive perspective view of the ore body and future development, and that is open at depth, and it's open laterally. So one of the key things that we will be doing is doing some additional drilling to reconfirm our life-of-mine plan. We've always talked to sort of really wanting to maintain the life. As we look at it, we're a 25-year-plus mine life at present, and we want to continue exploration in a way that enables us to extend that. And so that will certainly factor into -- the additional drilling will factor into more thoughts around how we -- the life of mine planning. In addition to that, yes, we're highly alert to sort of grade variations as we move through the ore body and how we balance those out. And the team at Mt Weld is very focused on metallurgical sort of review to understand how we can best optimize our processing. And as we move into different parts of the ore body, it may mean that sort of the flotation process in its current form may change incrementally or as we move into maybe -- for example, even the primary mineralization, we may use a different processing method. All of the investment and upgrade, which is required as we move through the ore body -- and remember, when we talk about moving into lower grades, there are still grades which are significantly higher than most other resources in the world. As we move into those, we will require upgrades, and we have included that in our planning for the business between now and 2025.

Okay. Excellent. And what does it look like in terms of the proportion of Duncan ore that you'll be mining over the next couple of years? Do you see that -- as a proportion to the other types of materials, does proportion of Duncan material increase over the next couple of years with the way dysprosium and terbium is looking?

I can't, off the top of my head, give you any specific numbers on that. I mean, we certainly -- we actually right now, as part of previous mining campaigns, have mined areas within the ore body, which we classified as sort of the Duncan zone. I mean it was originally sort of classified as a separate ore body, but now we just see it as a part of -- as a different zone. And we are blending that in with our current production. And that is so that we can have an enriched stream of dysprosium and terbium. And we expect to be able to continue that.

Sure. Okay. Okay. Just on a -- returning back to what it's going to look like over the next 12 months for the development of the cracking and leaching facility in Kalgoorlie. Can you just give us a high-level overview on sort of the major tasks over the next 12 months? What are the key milestones you'll be aiming for?

So completing all of the engineering and design work. And we've included in the presentation a 3D graphic, actually, showing what the plant is going to look like. It's all pretty exciting, actually. And we are substantively complete on that. So sort of moving into -- we've already [indiscernible] the first long lead time item, which is the kiln. And we're moving to tender on some of the other longer lead time items as well. Of course, our approval path is a crucial part of this, and that our studies are very well progressed or, in some instances, complete. Our submissions to -- in a number of areas, it's already been made. And of course, the value of the lead agency status from the West Australian government and major project status from the federal government is very helpful in that area as we have project management partners within the government to help us to navigate our way through those processes. So we have 2 core streams in engineering and approvals. And then the third one, which we would expect to commence within this financial year, will be site early work ahead of sort of major construction, sort of towards the middle of next year.

[Operator Instructions] We have no further question on the line today. And so I would now like to hand the conference back to you, Amanda, for closing remarks.

Terrific. Thank you very much. And I will just close by stating that we will -- we do anticipate making further announcements with respect to the equity raising in accordance with our ASX continuous reporting obligations in due course. And we will communicate directly with security holders with respect to their eligibility to participate in the equity raise. Other than that, I would simply like to thank everyone for their continued interest in our business and look forward to continuing that through the new financial year. And as I said, a new decade. So thanks all very much.