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

Ladies and gentlemen, thank you for standing by, and welcome to the Lynas Rare Earths Investor Briefing. [Operator Instructions] It is now my pleasure to introduce Lynas.

Good morning, and welcome to the Lynas Rare Earths Investor Briefing for the half year ending 31 December 2021. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. And Amanda is joined by Gaudenz Sturzenegger, CFO; Pol Le Roux, VP Downstream; Daniel Havas, VP, Strategy and Investor Relations; and Sarah Leonard, the General Counsel and Company Secretary. I'll now hand over to Amanda. Please go ahead, Amanda.

Thanks, Jen, and good morning, everybody. As always, thank you for joining us to hear about what's going on in our world. Not surprisingly, I'm very proud to be announcing the results to report these numbers today. I'm also very proud of meeting several milestones in our growth plan, both during the half year and subsequently. We are after a very good first half. We are entering the second half with prices much higher than they were at the beginning of the first half. And with a number of successful strategies in place to counter in particular, some of the challenges that we've had from COVID-related logistics. For us, our systems have ensured that COVID has been a business disruption challenge, not a health risk. Public and private vaccines in Malaysia and support for our people in Western Australia as they've been vaccinated means that we now have a vaccinated workforce. And to date -- whilst some of our people had suffered from COVID, to date, we have only had relatively mild cases. But as the Omicron wave hits both jurisdictions in which we operate, maintaining our strong controls remain central to our successful operations. I was lucky in the first half of the year to be able to spend a full 4 weeks in WA during October and November. And just recently, in January, I was able to spend a week in Malaysia. And I'm really happy to report that our teams are in great shape, and they are energized and excited for the future. So I'll just step through some of the slides in our presentation that we've published today. I would like to just sit here and of course, just admire the financial numbers, but I'm sure you've already looked at that. So we have started this half year strong, of course, as prices have continued to grow and production is good. We're building cash and even where we've had to incur additional costs to deal with some of the external challenges, we've been able to keep those well under control. In this slide, we've, of course, included the production numbers. But as well as that, for those of you who are sort of concerned about our spend rate, I would have taken the opportunity to include the capital expenditure where you can see that we are making significant progress in terms of our CapEx, which reflects 2 significant projects that we have on foot at present, both the Kalgoorlie Rares Processing Facility and the PDF in Malaysia. The market -- sorry, just it's always worth noting, and I think that these ESG slides, which will sit in all of the corporate packs, really recognize the fact that corporations all over the world are understanding that they must include in their planning and execution a recognition of the importance of meeting and exceeding the expectations of their communities, customers, investors and regulators. So for us, I've already talked to the fact we have a vaccinated workforce. But some of the other highlights during the period. We're up to 24.5% of our senior executives now women. It's still below where we would like to be, but these are -- this starts to make a serious difference and there are some who would say that by virtue of having a female maybe the effect of the 24.5% is somewhat more. But the more important figure for me is the 28.5% women employees at the 31st of December. And I really want to recognize particularly some of the progress that we've made in both of our operating sites. As I said, I was up in Malaysia a couple of weeks ago, and -- it's just so great to be there. I haven't been there for 2 years, and it was really exciting to be back on site and see the way that the teams have really taken control of opportunities to improve the plant and improve their operations. But as we talk about particularly gender diversity in our organization, I was particularly proud as we went through each of the areas and I spent time with the area managers and the process engineering teams really to be able to report that probably 50% of our process engineering teams are now women. And that bodes well for our ability to bring talented women through into senior management roles in the future. It's great to have 24.5% senior executives today, but what we actually need is a pipeline coming through in the future. And of course, the other really critical matter on this slide is the environmental approvals, which have come through subsequent to the end of the reporting period. And I think that these are important not just because they allow us to progress these particular projects, but they demonstrate that Lynas consistently operates in line with regulation. They also demonstrate that we have the same standards in both jurisdictions. It was one of the things some of the anti-Lynas activists in Malaysia have said over the years as well, you're only in Malaysia because you can't do it in Australia. Well, I think that as we move through the development of the Kalgoorlie facility and particularly, as we receive all of the various approvals, we make it very clear that that's not the case. And that we meet and exceed environmental standards in both jurisdictions. And I would just point out that there was a fifth legal challenge against the Malaysian government's decision to grant in this case, a historic 6-month operating license. But [indiscernible] words I think, were particularly relevant. Lynas has not reached any rules or regulations at the lamp, and there is no evidence of any procedural in proprietary rationality or unreasonableness. So -- this is important because it's part of us actually standing up our responsibility to our communities and also to the environment. Now I know many of you watch sort of the overnight price of rare earths breathlessly would know that the market is strong and it is growing. So it continues to accelerate. We see demand acceleration actually in all parts of the rare earth supply chain and across all geographies. So demand is strong inside China for inside China consumption. It's strong inside China for magnetic materials and/or motors, which are then exported to outside China market. For us with a very clear focus, and I think most people who have followed us for a while, know sort of -- that our key market today still is with our Japanese customers. We can tell you that demand there is strong. But we are continuing to deal with inbound demand, not just from magnet makers, but also from magnet buyers. And that bodes very well for the future. We've included some stacks in here, which I think you should find very interesting about the sort of demand growth that we will expect to come just from 2 products, the 1 being electric vehicles, which is, of course, the one that everyone gets most excited about. But also from wind turbines, every one of those big turbines you've now got some of those new ones that generate huge amounts of power. These are going to drive significant growth in rare earths and demand for particularly the magnetic rare earth materials. I'm sure there'll be some questions on that, and I'm delighted the Pol is with us today, and he'll be able to deal with all of those in some more detail. So as we look at our operations, Lynas Malaysia has really very successfully managed a number of pandemic-related challenges. I know that it's been a matter of some frustration to some of our investors that we've continued to operate at about 75% of Lynas next rates. I can tell you that it's nowhere near as frustrating as it is for us as we look at our opportunity to continue to grow throughput. And some of the things that we've done during this time, particularly around logistics, give us greater confidence as we move forward. We mentioned in December for the first time that we used charter ship. There is an increased cost, of course, to using a charter rather than commercial shipping, but it pays into insignificance compared to our ability to ratchet up production. We will see the continued management of both commercial and charter ships as being a feature of our operations as we move forward. But what I guess is most pleasing for me is I think that sort of the last 2 years in Malaysia, and I was able to see with my own eyes was really the team has taken the opportunity to ensure that the plant is shipshape. And that really means that they consolidated some of the initiatives that were part of the Lynas next program, and they have added more. I think this week, we're taking delivery of our fourth heat exchanger, which is an important part of ensuring we improve recoveries and efficiency within our cracking and leaching area. But right across the plant, there are really quite exciting initiatives driven once again by that process engineering team, I was talking about to continue to improve the plant's reliability, availability and therefore, our production throughput at counts. At Mt Weld, I guess one of the really exciting things is that we've completed the overburden removal, which is associated with mining campaign 4. And just in the last week or so, we've started mining ore. And as indicated here, we've got a number of drilling programs related with the mining program. And of course, that's in addition to a significant exploratory drill hole where we drill down 1 kilometer. And we expect to be able to inform the market as the outcomes of the analysis of that material in the near future. As well as that, at Mt Weld, as in Malaysia, we are focusing on continuing to improve our operational performance, particularly with respect to recoveries, but also with respect to the way that we manage our water. It's interesting we operate on one of the driest continent in the world and we operate in one of the wettest continents in the world and in both instances, really, the challenge for us is to ensure that we continue to implement systems, which see more recycling and better use of our water. We continue on the pathway of looking to grow. In fact, the teams are spending their time on looking to see what are the best opportunities for us to accelerate growth. I talked about this a little bit in January. And I'm sorry, we don't have any more detail quite yet. But the teams are working on developing this detail. In 2019, when we first constructed the Lynas 2025 growth plan, we were looking to grow production by about 50% by 2025, that clearly will not see us keep up with the market. And so in all 3 locations that we operate. And of course, in those where we're looking to establish facilities. The teams are now working on what does a plan that will allow us to accelerate our growth plan look like and have made some very, very good progress in those areas. But turning to the biggest project that we have on our books and the biggest project that we've been running since 2012. I know that some of you open each of our updates, expecting us to provide a brief on cost overruns and schedule blowout at Kalgoorlie. And of course, with all of the uncertainty in our external environments, I would be bullish to say that you won't get your wish one day. However, there is no briefing today on cost blowouts or project timing issues because we remain on track. As indicated in the subsequent events section of the financial report, we received the ministerial statement right at the beginning in February, I think it was. Our team is on the ground. Our team is fleet of foot because of the way that we are managing this project and are able to manage multiple concurrent work streams. As a result, once we had the ministerial determination, the 3 subsequent approvals required to continue to develop the Kalgoorlie project were received within a week. And at showing, I said a note to our construction manager, I said, "I hope you've got the equipment on site." He said, "Yes, and the motors are running." In the real world, we started clearing the next part of the plant the day after we received the 1/3 of the subsequent approvals. So now if you look at this picture, you can actually see that we have the whole of the production pad has now been cleared and is ready for sort of continuing construction activity. Of course, we will have further clearing and bulk earthworks activities associated with the site. But the first and most important thing is to ensure that we can get our production at -- our production facilities in place. It's exciting you can see that we've got all 5 sections of the kiln now on site. I'm told that when we lift it into place each will be lifted, and then we will start rolling that and we will roll those sections in place as we roll them around. I'm really greatly hoping that I will be able to be in WA at the time that we do that. We also have many of our tanks have now been delivered to site, and we're using them at present for water, but they will now progressively be able to be put in place. And of course, all of the kiln footings have been fully completed. So look, there is a long way to go. This is a significant site with significant complexity associated with it. But the team is really doing outstanding work on the ground. And we've now got -- we've given you a few details around this. As you look at this, we've got -- we've given you some details of what we've got ordered. How we've got it ordered. So we won't have equipment availability becoming a limiting factor as we move forward with the project. So -- just a few words around using our ESG framework in and decision making within the business. It is embedded in all of our operations and all of our projects, of course, at the most significant thing has been ensuring the health and safety of our people as we continue to operate with pandemic challenges. And for the first time, we really have to manage this very carefully in WA as well as in Malaysia. But we have a model which works. We have a system which works. It does involve a significant program of surveillance testing of our people. And relatively well-oiled machine, I would say, in terms of responding to that, understanding whether they interacted with others outside of the workplace at its heart. The primary mitigate that we're seeking here is to ensure that people who are infectious or are infected don't actually enter the workplace. And as we said in the beginning, we are looking at the Omicron waves, gathering momentum in both jurisdictions. So continuing to operate very carefully is essential. The other thing, of course, is that in both jurisdictions, the pandemic, in particular, has created challenges for the communities in which we operate. And we have not lost any of our focus on our community programs. In fact, we have accelerated it and ensure that those community members who have been affected by either the pandemic or indeed extreme weather events, which have occurred in Malaysia continue to get our support. Likewise, in Western Australia, we operate in remote area and ensuring that we provide logistical and where relevant on the ground support for the local community. We've been very happy to do that. So as we look forward, we continue to look to enhance our operational performance. I can tell you that the plant in Malaysia is running better than it has ever done. And that bodes well for the future is very exciting. We're looking to continue to develop our resource. I think everybody has read the various articles from commentators about increasing demand. We've been blessed by nature with the Mt Weld ore body and continuing to develop that, including real exploration is an important part of our plan as we move forward. And of course, continuing to develop our industrial footprint. As we noted in the financial report, our Phase 1 project for the DOD was judged to be a success, and we continue to discuss with the DOD execution in subsequent phases. But our big challenge is to accelerate our growth plan. And to do that, it's not just the case of do more of the same. We're asking our people to innovate to really think about how can we do things better, so we can do them faster to really think about whether we're optimize our flow sheets for best effect for our communities and also for the environment. And I can say with absolute confidence though I can see that happening in each of our sites. And of course, that means that we're able to deliver excellent financial performance as we have today. But also excellent outcomes for our communities and also the environment in which we operate. So with that, I'm very happy to take any questions that might -- that you might have.

[Operator Instructions] Our first question comes from the line of Jack Gabb with Bank of America.

Two quick questions from me. Firstly, just on your long-term demand projections, which I think are really helpful. Just on the, I guess, clarity. Firstly, is that on a, I guess, a fresh oxide basis, i.e., net of recycling and specifically then on the EV side of that equation. Do you assume any change in sort of NdPr per EV intensity, which I think is around about 0.7 of fresh oxide?

So I'm going to pass that question to Pol, who's joined us today because he's closed -- he's the closest to that.

Good morning. Yes, the answer is simple. It's fresh oxide only. So recycling is not accounted for. And to the second part of your question, we see a very marginal switch away from permanent magnet technologies from motors. At the end of the day, when you discuss with carmakers the price is worse the value just because of the weight, a much lighter weight of permanent magnet motors and better efficiency that leaves you at even current price of NdPr to save a lot more money on the battery than what you would pay in addition for the cost of the motor. So we don't see switch away from permanent magnet technology at the moment.

And just a quick follow-up on the wind turbine side. Do we assume or should we assume that all of that offshore gigawatts have built all you sort of direct drive turbines, which I guess is the rare permanent magnet one as a positive. Is that the way to think about it?

Yes, that's a good way. A very big majority of new projects and offshore is now a direct drive simply because you have a lighter structure, you have less maintenance and maintaining wind turbines changing gearbox at sea is a very complex situation. So we just look at this, looking at the offshore developments, which is a safe development of consumption for NdPr. Adding to this, inshore, so which is a mix of direct drive and gearbox, wind turbines, quantity is much bigger. And a part of them, even with gearbox is using permanent magnets. So actually, the numbers are bigger than the offshore.

Right. Pol, that's really helpful. And then Amanda, one for you, if possible. We obviously saw that the MP Materials got the award from the Department of Defense on a heavy rare side of the business. Are you still progressing your plans with the DOD? And how do you think more broadly about the opportunity for heavy air separation, whether it be in the U.S. or Europe?

Yes. Thanks for that. I think that as we look at the U.S. government and funding of the rare earths industries that they've demonstrated a determination to fund multiple projects across multiple parts of the supply chain. We continue in discussion with the U.S. government with respect to the heavy rare earth. As I've said previously, whether it's in the U.S. or whether it's elsewhere, we will be separating our own heavy rare earth, the DyTb, in particular, high in demand, and we will be separating those materials ourselves. But the conversation with the U.S. government is an important one. Unfortunately, the government are -- as government -- they match to the down of their own drama and all politics are local. And I think anyone who watched the launch of that would understand that it was very much about American -- Made in America. But I don't think that they have lost any focus on the importance of a reliable supply chain.

Your next question comes from the line of Hayden Bairstow with Macquarie.

Just a question on -- I guess on Kalgoorlie. Just on one of the plans to enable that smooth transition. I mean what's the capacity to I guess, step up front-end processing in Malaysia to make sure you can sort of build up a stockpile. So there's obviously anything on track at the moment is there is any sort of further delay to this is going to have effectively no impact on your ability to produce oxide?

Yes, yes. So we've -- it goes all the way back to Mt Weld, in fact, what you're talking about and building buffer stock in the system. We have a separate stockpile at Mt Weld of concentrate that we've produced. This is certainly our expectation that there will be a period of time when we had -- there will be at least a period of time where we operate both facilities. And so we will be managing that. As I said, the Malaysian plant is running better than it ever has. Pol and his team have done an outstanding job there. And so I don't think that I would say that we're going to ever be able to build a significant stock of finished product because demand is so very strong. But we certainly have detailed planning for that the period between now and the 30th of June 2023.

Okay. Great. And just on the operating rate, I mean, you touched on it a little bit, but what point do we expect to start pushing to say 80% of the next capacity and a little bit hard on that over the course of this year?

We're certainly hopeful that you'll see that sooner rather than later.

And are we likely to see sort of 100% of the old mix target the 4 Kalgoorlies up and going? Or is that something that you'll push beyond once you get there and then look for the minus 25% target?

On very low with all of the uncertainty in the external environment. I mean, I'm always love to provide guidance, but I'm more lows than ever with the uncertainty in the external environment to provide guidance. Even the opening up of WA brings its own challenges. Being locked up has certainly given us stability there. But as everyone can see, it's not going to avoid its own COVID way. And sort of managing that carefully is going to be critical to us continuing to beat Malaysia, continuing to manage logistics is critical to feeding Malaysia. But I can tell you that we have ramped up past 75% now, but I'm not going to give you an end point on it today because it's just too risky.

Okay. No problems. We've been swimming in our own fish call over here, Amanda, that it's certainly ramping up pretty quickly on the COVID side.

It is. It is. But I've made sure that I'm all prepared so that if the border does open on the third, I'll be able to get to WA sometime during March.

And our next question comes from the line of Daniel Morgan with Barrenjoey.

Just on the Kalgoorlie plant. Can you just outline what's on the critical path for the build now? I mean looking at the picture of the site you've given us, there seems to be a lot of equipment at site. There's a lot of foundation work going on. Is it people? And can you talk through the people you have -- how many you need? And are you ramping up the people side of things to build this project?

Yes, yes. We've significantly increased the size of our team and are continuing to do so virtually on a daily basis. The piece now is actually constructing stuff. Most of our engineering is substantially complete or complete. And so that's critical as we start to move into building buildings and putting equipment inside those buildings. So clearly, that's important. At this time, we're finding a lot of very positive response from people who either currently live in Kalgoorlie or would like to live in Kalgoorlie. And that, I think, bodes very well. It's always been a key part of our thinking on this plant that we want to have a residential workforce. And I think that we're seeing the benefit of that as a strategy.

Okay. And at Mt Weld, you've undertaken some drilling and you said you're going to update the market on the outcome of that. Could you just talk to the scope of the update coming? Is it a new resource reserve statement coming? A new mine plan, what are you going to outline that?

No, we're quite a long way from doing that. So I think there's 2 parts to what we're doing in terms of our drilling program. The first is of the grade control drilling, which is associated with mining campaign 4. And we've given you a few numbers on the number of drill holes that we've done as part of that program. We also, as you will recall, did the 1 kilometer down into the fresh carbonatite below the floor of the current life mine pit. And that's what the geology team has been doing a lot of work on it over the last 6 months and are just completing that study. But what it will do is that it will frame an exploration target rather than be a leap to an increase in the resource and reserve. . The other area where we will be ramping up sort of our drilling effort will be continuing to look for water within the local area as said water remains sort of a critical and potential -- potentially a limiting factor. We can increase the amount that we recycle certainly, but we also need to be sure that we have ongoing water sources. So I wish I could give you say that we will have a resource and reserve update imminently. It won't be imminent, but we'll have some very interesting information for you.

Maybe a question for Pol. The China quota on production is 20% higher year-on-year, but the rare earth prices are surging. Maybe you can talk to -- why is that? Is it possible that whilst the quarter is are 20% higher, maybe production isn't or won't be? Can you just talk to the market dynamics supply?

I think it's a great question. There are many questions around how fast the demand grows. Fact is after the announcement of quota has increased by 20%. The price of NdPr in China continued to grow from CNY 900 to CNY 1,100, which shows that the situation continues to be extremely tight. In fact, when you look at the balance of NdPr globally in the past 2 years, basically, supply was a bit lower than demand. And so what we've seen, actually, it's all the existing stocks going down. So a typical magnet maker in China would run with 6 to 10 months of stocks. Today, they hardly get 1 month ahead of them. So the situation is very tight, and that means that all of existing suppliers, of course, Chinese but also liners have a very simple, crystal clear priority, grow as fast as possible.

And -- just on that -- one more question, Pol, just on China. I mean, it's very hard for us externally to look at China and work out what the rare earth industry is doing, and I appreciate you being an industry talking to customers. Can you outline -- do you think China has material surplus capacity in the rare earth industry? Or do you think that, that has been and is being consumed?

Actually, it's an interesting question. Potentially, they have additional capacities of production separation. But a number of them need to be revamped. They've been idle for a while. So it might take a bit of time for them to restart all this idle capacity. Interesting point, if you look at the global balance, sorry, I don't have the details to present you, but -- today, a very big portion of ore processed in China comes from outside China. Ionic clay basically in China is shut down, and the only source of ionic clay is Myanmar. And then you have a concentrate, as you know, coming from U.S.A. So it's a big change in the industry situation whereas ore -- a substantial part of ore comes from outside, and that's the way you should understand the current ongoing restructuring of China risk industry. The primary goal is to have a better purchasing power. So rather than having 4, 5 companies fighting each other to get access to get their hands on imported ore having a single one. That's basically a big driver for this restructuring. And so it's a big change. So question -- I mean, answering your question, in terms of ore not so much, in terms of processing, it will take a while. And just a funny comment. Yesterday, I was talking to Chinese when you say you have a hard time to understand Chinese, the Chinese told me a funny story. I was talking about where do you see the price going, et cetera, and they say, well, we learn from Australians, they have iron ore and they increase the price a lot. So we do the same with rare earths. You're lucky. You have Lynas, so you are in risk and iron ore. So ...

And our next question comes from the line of Reg Spencer with Canaccord Genuity.

Amanda, I was wondering if you could maybe expand on my comments around how Lynas might look to keep up with the market. I know you've got an amazing ore body there. There is the potential for that to get even bigger. But if we had to think about what that keeping up with the market might look like, might this involve increasing capacity like Mt Weld supported by any expanded resource? And if so, what would be the main capacity constraints that you would then have in Kalgoorlie based on the current design?

Yes. So -- yes, we will have to increase production at Mt Weld to achieve the sort of growth targets that we're seeking to achieve. We have to produce a lot more [ corn ]. And of course, that's another reason why we're doing further exploration because we say, double production, we don't want to just half the mine life. We want to be able to continue to refresh the reserve. It may be that -- and this is why as we look at the deep drill it may be that is removed into the fresh carbonatite from the weather zone, which we're currently mining that we may implement a different flow sheet to be able to achieve those outcomes. And we certainly -- I've already sort of flagged that we'll need to invest in a number of the utilities at Mt Weld power. We like so many other remote sites still have a power station powered by diesel. So we need to transition from that. We'll do it in the first instance to a gas power station, which will make a significant dent in our greenhouse gas emissions, but ultimately move to a renewable solution for at least a significant portion of our power flow. We also will need to invest in our water, another key utility for being able to run this facility in that well. In terms of the Kalgoorlie facility, it has been designed in such a way that the ancillary elements other than the kiln are actually configured for much larger throughput and indeed, additional processing if that becomes relevant. So we're focused because it the essential piece that we focused in the first instance on making sure that we have replacement capacity, but we actually have the ability to ramp that up and to add to it is relevant. The other area, of course, and that is an obvious opportunity is that any time that we invest in our current assets will be able to move faster than any time that we're doing anything on a greenfield basis. So opportunities to continue to drive throughput, particularly in the downstream area in Malaysia, are a matter of detailed design at present. So investigation and concept is well progressed. And really, what we're looking at now is what would be the implementation part of that. So it's a large task. There's nothing -- with Lynas mix, we were able to really debottleneck our way to a significant uplift in production. So if we want to keep up with the market, then we're talking about significant increases in throughput at each stage of the production flow ship.

Understood. It sounds like it would be quite an undertaking. Just on that note in Amanda relocations tracking and [indiscernible] group gives you more footprint to work with the separation in Malaysia. I get that. But in terms of expanding separation capacity. This is where the U.S. initiatives are elsewhere, as you pointed out before, could fit into those plans. Just on that front, then with the U.S. plants. It doesn't sound like that, that project is a question of funding because you're obviously generating a lot of good cash flow, pricing is strong. It doesn't sound like it's really approval. So if it's not a question of either. Would your acceleration of the U.S. be reliant upon the DOD, which seems to be moving pretty slowly.

So just to go back Reg, I think that I would just point out that we don't -- one of the things that we've put on this chart about accelerating is looking at innovative solutions to our ability to go throughput. And so that doesn't necessarily always mean building whole new plants. And so there is work that we can do to continue to uplift our throughput capability by putting in innovative solutions. So that is certainly one of the things that we're looking at. In terms of the U.S. Ultimately, the question for us strategically is, if it's coming off our balance sheet, is the U.S. the right place for us to build a greenfield site. If it's coming off the USG balance sheet, then we think it's fabulous place to build a greenfield site. And so that's the reason why we continue to work with the USG. I mean in terms of value for our shareholders, having somebody else pay for the growth is absolutely worth it. And just right now, with 2 very large projects on foot, we are working through that process and we're quite confident that we will get to where we need to get to for the benefit of the business.

And our next question comes from the line of David Deckelbaum with Cowen.

Along those same lines, I would like to point out that I have no personal wish that you experienced cost overruns related to Kalgoorlie. But I did want to ask, in the past, I think there's been some potential brought up around Kalgoorlie expanding its capability into separation of rare earth elements. If that becomes part of the Lynas growth outlook over time? Would that require a new round of significant permitting beyond the scope that you've already achieved?

It would certainly require permitting. I'm not certain that it would be significant new [ permitting ]. But it's certainly it would be a substantial addition to the extent that we would be putting in new separation equipment. On the other hand, as I said, the utilities and ancillary services have been designed and configured such that, that site can do more throughput, but it could also potentially do more processes. But at this stage, we haven't sort of drawn a time line on what that permitting would be. But as you would expect, I mean, there's nowhere in the world that you can say, "Well, I'm going to do something, and it's not going to come with a permitting time line." So experience with [ CJ set ] adding to a brownfield site is generally an easier path than greenfield's approvals.

Sure. And then I guess just along that same line of questioning, you remarked about the U.S. expansion projects and certainly, if the U.S. government puts the bill there, it's obviously attractive in its own right. When we think about other avenues for growth, would there be a reason if you had to internally generate the cash required for a future growth project that anything would be outside of Australia? .

Oh yes. Yes, we've always -- we consider our industrial footprint on the basis that the optimum configuration really is having upstream close to the resource and downstream close to our customers. Malaysia has been a key part of Lynas success over the years, because Malaysia is close to our customers. That allows us to work with them, they come to site, they spend time with us technically and in a development sense which works very productively for us. It's also a low-cost jurisdiction. And sure, as we're sitting here looking at CNY 1,100 a tonne prices for NdPr, we can say -- why you're spending loads of your time thinking about cost well because -- it's the right thing to do, and we need to really understand that we can be successful when the market is strong and we can be successful if the market is not so strong. So Malaysia is an excellent location in terms of proximately the customers and also in terms of its cost structure. So are there other jurisdictions which may offer us similar benefits in terms of being close to customers and more low cost? Well, yes, certainly, there are -- so the idea of being in the U.S. is that the U.S. has not had a robust rare earths value chain operating in that country now for years. And if the -- our experience is that with security of supply of the raw material, you are more likely to get the downstream development. So part of us going to the U.S. is a belief that if we are there, that there will be further downstream development occur and then it will be in line with what we're talking about, which is upstream plus the resource downstream close to customers.

And just the last one for me. On the U.S. plants, is there a scenario where you might pursue just a heavy rare earth separation facility with a sort of multiyear delay around lights? Or would they have to be occurring in conjunction with one another.

There will only be one facility. And I think this is really quite important for people to understand that if we're going to have light separation and heavy separation, it's not like it's 2 sort of separate independent plants. Any second might we talk about the ancillary and services and utilities on any site to get efficiency on those, you need to have critical mass for operations on that side. So where we start it with the conversation with the USG was certainly about heavy separation because that was the area where the USG is most exposed. It remains the area where the USG is most exposed. And so if we look at this and we think about -- well, how should it be prioritized in terms of execution and delivery. Then I think it was that question that the heavy still is a more important part than the light as far as the USG, and particularly the DOD who are the funding source, particularly for the -- as far as the DOD is concerned.

Our next question comes from the line of Paul Young with Goldman Sachs.

A couple of questions around the ramp-up of Kalgoorlie and sort of matching that with Mt Weld. First question is around your experience with the wrap-up of the Kalgoorlie in Malaysia. What's your thoughts around the time frame on the ramp-up of the Kalgoorlie facility?

So our secret and not so secret weapon is the fact that the people who have already been through that longer ramp-up phase will be the people who are managing the ramp-up of the Kalgoorlie plant. So our Project Director for Kalgoorlie is Grant McAuliffe. He was the site GM in Malaysia for a number of years. And before that, he was actually the one who ramped up [indiscernible]. We will have some of our skilled Malaysian team available in Australia at the time of the ramp-up. But we will also have some of the people that will be recruiting to run the facility here, go up and work in Malaysia for an extended period of time. So they are able to move up the knowledge curve very quickly. So the length of time that it took us to get cracking and leaching fully operational in Malaysia, we feel is not going to be the sort of time frame that we're talking about in Kalgoorlie. Because -- not only are we not going to make the same operating mistakes, but actually, we're building a better plant, which should see us be able to do that a whole lot faster. But there will be a ramp-up period and we have factored that into our planning.

Okay. The next question is around the just the matching of the Mt Weld to -- the cracking and lesion facility will have cost of throughput of 2x that of give or take, what our well produces at the moment. So it's not an easy expansion in that world, but it's a small plant. So there's certainly a lot more difficult expansions on a milling and float circuit going around. So how do you think about increasing the capacity of Mt Weld to match the ramp-up [indiscernible] you can do it at the forehand or after? And then second to that, obviously, your head grade come down naturally over time. So how do you feel about the expansion in that well to sort of continue to produce the amount of risk you need to actually fill.

Yes. All good questions, and we have a fully staffed project team actually looking at all of those right now. And as I indicated, there's -- utilities is really a critical part of -- I mean, Mt Weld is a long way from anywhere. And so making sure that we have power and water are a crucial part. The -- as you pointed out, the mill and the folks they're relatively easier certainly than most other places. It's worth noting also and as you say, Paul, it's a little plant. It's a little plant because of the extraordinarily high grades of the material that we're processing. And so yes, to take the next step, we're going to need more plant because we're going to come down in hand grade. But we're still going to be -- our head grade is still going to be ahead of any of the aspiring producers. So we're working through all of that, and there are some parts of that plan, which we would say are just absolute no-regret elements and that we should do them, whether we were expanding or not expanding. And so the team is working on that right now. And then there are some other parts where we will have to make the decision based upon what we see in terms of resource over -- over time because we don't want to overinvest in areas if we then move into processing a different type of material. As I said, we're processing at present from the weather zone. But as one of the important parts of the exploration is understanding how that material may differ as we move into the fresh carbonatite.

Got it. Okay. So it sounds like studies are work in progress. That's fine. Just the last 2 things from me, just on the cash flow statement. Can I just ask around that the rehabilitation discharge, the payment there. Is that a yearly event now? I know the provisions aren't wound by the same amount, but that's cash out the doable. What is that? And then secondly, on the CapEx, is all a step-up year-on-year Kalgoorlie? Or is there some sort of [ crake ] around sustaining?

Okay. So I'm going to let Gaudenz take the first part of the question.

Yes. Thanks for the question. I think specifically for the rehab, the discharge you have seen in the half year is really specifically related to payment which was made under the contract we have for the PDF set up in Malaysia. I think they are not at a couple of milestones, which are coming. So it will also lead to a discharge. However, this overall, it's a very specific elements. As soon as we have built the PDF, I think you would see rather normal development of this expense. So it is a special event this half year. However, if you go back to the agreements we published for the PDF, you will see one or two other ones showing the same development. And could we just quickly ask you to repeat your second question?

Yes. It's on CapEx. And obviously, that will ramp up over the next 13 months on the S-curve on the -- as Kalgoorlie completed, but just the $40 million increase year-on-year. Is that mostly Kalgoorlie? or has there been some sustaining CapEx sort of creep coming in?

It's -- well, it's both. It's mostly Kalgoorlie, that's correct. And obviously, you will see that continuing -- particularly if you're also looking at the capital commitments, you see how that increases and you will see that following through with the development we have at Kalgoorlie.

But in addition, there is some increase. I mean, as we look at our facilities today, they're 10 years old. And so we are taking the opportunity, as I said, in Malaysia during a period of time when we've been -- when throughput has been lower, Pol and his team have done sort of a full inspection of the facility and understood where the areas we really should be improving the plant 10 years on. So there is some small group there, but the vast majority of that step-up actually relates to the Kalgoorlie facility.

Our next question comes from the line of private investor, Jay.

Jay from Colorado. I have a couple of questions for you. A couple of questions for you. First question is, you guys have almost 100% participation in vaccinations in the Malaysian plant. I'm just wondering if you can speak a little bit as to how you accomplish this? And a corollary to the first question would be, would you be willing to go over the United States to Washington and sit down with our Congress and get them to agree on anything?

So what can I say? I think that everywhere in the world, we see the most rapid uptake of vaccination comes from one or both of two sources. The first is if people see a lot of people around them getting sick. And so in the September quarter last year, we had a very large Delta wave in Malaysia. And that coincided or we were just a little bit ahead of. And actually, we've made quite a lot of cases even before that with our ability to participate in public/private partnership to deliver vaccination. So we weren't reliant on the government to actually run the vaccination centers and we were able to work with our local health provider to do that. And because we were able to do that, we were therefore able to manage our workforce in a way that allowed them to be to tune up and present their arms for vaccination. And we scheduled it and we managed it and we managed the communication on it, but there's certainly a very compelling reason for our people as they watched people around them get sick these very compelling reason for them to take up the vaccine. We have one person who's not and our standard operating procedure is that if you're not vaccinated, then you want to come to our site, then you actually have to take a daily COVID test and you have to pay for it yourself. So once again, that's sort of a strong motivator. Of course, the other thing which sees people take up vaccinations is government mandates and in Western Australia. There's government mandate that says that anybody who's working on a remote site, which is what we have in both Mt Weld and also in Kalgoorlie must be fully vaccinated to be able to work on that site. And so that certainly has made our lives a lot easier there. And that's why I'm saying that now we're looking at really a fully vaccinated workforce in both locations. Unfortunately, vaccination is not going to stop people getting sick, but it does appear to be doing its job in stopping people getting very sick. And so for us, it's managing this on a business interruption basis because we can't afford to have a lot of our people either of sick or furloughed because they're close contact. So we're managing it carefully. And as I said, we have a very strong surveillance process. And it is all about making sure that our people stay well. And I think our people recognize and appreciate that, that is our first -- always our first objective.

Okay. Second question I have is you don't hear much about this at all, but you have a big involvement in EcoVadis and also the United Nations Global Compact, your signatory. Can you speak a little bit to how important this is going to be in a macro sense for Lynas in the future? Because it really is a big achievement, and it's not talked about very much.

I might have Pol speak to that because I think this point about sustainability particularly with respect to meeting our customers' requirements and EcoVadis is an important part of that is something about which is quite passionate.

Yes. Actually, Lynas business model is to supply rares outside China in a recognized sustainable way from the start. And for a number of customers, it's a must have. So if I take the example of EcoVadis, this was required from a certain number of European customers. If you want to supply us, you need to have a certification for -- from EcoVadis. And just to highlight, I mean we are very proud of this. EcoVadis is actually an organization that managed audits on behalf of all the chemical companies of Europe who joined together in a program called Together for Sustainability. And they audit in that regard, all their suppliers, which is more than 10,000 suppliers worldwide and 5% of 10,000 are gold Middle East, and we are one of them. So we are very proud of this achievement. And it is essential in our business. It's opening a door, a very important door. You can't do business in Europe today without this kind of certification, simple. And the same develops a lot for especially green applications, so EV wind turbines. The worst thing you want is to be blamed for developing an electric car with people saying that but to do that, you are having children working in your factory in Malaysia or you're killing the environment that would kill definitely your business as a car maker. So car makers are extremely cautious and actually having a very strong demand for their suppliers to be recognized, certified and this is all the approach we have taken in Lynas to be able to be -- to claim or to justify our performance with certified audits. And I will just add one last point on this is that -- for us, the key criteria is the life cycle assessment, which is basically evaluating the impact and environment of all our operations from the mine in [indiscernible] to the big bags. And so we have that, we are certified and certified our results by SGS or external recognized audits. And that is very valuable because there are -- I mean, you need to have numbers to answer to fake news, basically say that if you use NdPr from Lynas, based on numbers, and we did that also with our metal makers and some magnet because customers to say, well, down to the magnet, this is so much CO2 emit and this is a lot less surprisingly, in some past presentation, we showed that there was less CO2 emissions following this past, Lynas, [indiscernible] as a supply chain down to the [indiscernible], less CO2 emissions on the making than the same motor maker, induction motor. So you need to have numbers for that to address the -- especially social medias are sometimes very powerful. So it's essential for our business.

I'll now turn the call back over to Amanda for any closing remarks.

Okay. Look, once again, thank you, everybody, for joining us this morning. It is really a delight to be able to present the half year results. And we, like all of our teams are feeling energized and excited about what's now really a strong and a buoyant market and it's just terrific to be working on really substantive growth plans for our business as we look forward over the next 3 to 4 years. So thank you all, and I think I'll see some of you over the next couple of weeks, either online or in person.