Lynas Rare Earths Limited

Ladies and gentlemen, thank you for standing by and welcome to the Linus Corporation quarterly results briefing. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will just need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I will now hand the conference over to the Linus Corporation. Thank you. Please go ahead.

Good morning and welcome to the Linus Corporation investor briefing for the December quarter 2019. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. Amanda is joined by Gaden Sturzenegger, Chief Financial Officer, and Andrew Arnold, General Counsel and Company Secretary. I'll now hand over to Amanda to commence the briefing. Please go ahead, Amanda.

Thanks, Lauren. Good morning, everyone. Happy New Year and Gong Xi Fa Chai. I'm delighted, actually, with our very early Chinese New Year this year because it means that Monday is a public holiday not only for Australia Day, so happy Australia Day to all the Australians on the call, but it is also a public holiday in Malaysia. And the last time this happened, I ended up going to Japan. But this time, that is not the case. So a long weekend, I think, beckons for all of us. So for us, and I think from a couple of the little reports already put out, thank you, Dylan and Michael, for being so quick to act. In an operating sense, it was a relatively uneventful quarter. Certainly disappointing that we once again missed getting the approval from the Malaysian Department of Environment for the uplift in processing at our plant. But on the positive side, there were a number of initiatives that we had put into place primarily in the previous quarter or early this quarter particularly with respect to management. I think last quarterly call I talked a little bit about the issues with carbonate and Crandallite in the ore that have come out from Mining Campaign 3. And the new circuits and new treatment protocols that have been implemented in Mount Weld have been very successful and have certainly contributed to improved efficiencies in Kwantung. And in Kwantung, certain actions that we have taken, for example, the addition of iron sulfate to the process in cracking, have also improved outcomes. We've certainly managed to get significant uplifts in recoveries for quite extended periods of time. Then maybe not so good, cracking and leaching manager sometimes will look at me and they'll say, so when are you going to have a go at me? But generally speaking, recoveries are significantly enhanced from where we were looking at towards the end of last quarter and early into this quarter. So as I said, operationally fairly uneventful. Pity we didn't get the uplift because we certainly could have easily pushed more through the plant. And in December, we actually had a very, very good month because, of course, we ran everything as hard as we could knowing that we would be running out. The market continues to be very subdued. The market price continues to be very subdued, notwithstanding that there's excellent demand. Demand growth, particularly in the Japanese market, is strong. and indeed by far the greatest proportion of the material that we sold in the quarter has gone into markets outside China, particularly into Japan. SEG and LACE, as we've highlighted in the report, saw good price realisation. SEG, very much a demand-driven change in price with the reduction in material coming out of China and the increasing demand as part of the electrification story but I guess we're even more proud of the improved pricing on lanthanum and cerium because this is as a result of the work that we have been doing specifically on different grades, different qualities, which has seen us be able to deliver an improved average price, which is a very good sign for the future. I know everybody loves to be focused on NDPR, but every kilo of NDPR that we produce is going to bring a kilo of lanthanum and two kilos of cerium with it. and finding homes for this, A, material, finding a home for it is incredibly important. B, every dollar that we get effectively falls to the bottom line because we really look at our costs on a cost per kilo of NDPR basis. But I guess the most important things then really are the strategic matters that we have been dealing with rather than the operating matters, which after five years of operations, I'm delighted to say does not need a lot of intervention from anyone other than the hardworking operations team. So as we look at Linus 2025, we now have a substantial team working on Linus 2025 planning, engineering and projects. So this includes, in Western Australia, a team whose primary focus is certainly on managing the project, ensuring that we are crossing our T's and dotting our I's, but with a great deal of focus there on dealing with government, dealing with approvals, ensuring that we've got all of the location decisions made properly, And then we have our engineering. And as time goes on, it will develop into our construction team as well, who is doing the work on really what are we going to build, how is it going to work. And that team, for those of you who know many of our people, Grant McAuliffe, who was previously the site manager in Kuantan, is now leading that team full time, ably assisted by many of our Malaysian engineers. It is our Malaysian engineers who are doing the primary design and specification work, not only for the plant in Kalgoorlie, but also for our proposed plant in Texas. So during the time, during the last quarter, as we indicated, we would finalize site selection. You will recall we started with three to five sites that we were considering. We have announced the selection of a specific site in Kalgoorlie-Boulder. The Kalgoorlie-Boulder City Council could not be more welcoming and supportive in terms of assisting us through the various activities that we need to be certain that we can develop this site, but more so even in terms of ensuring provision of appropriate utilities, most particularly things like water. And I just would say this, Kalgoorlie has been excellent at, of course, when you're out in that neck of the woods, you need to be conserving your water. You need to be recirculating and reusing it. And so we have an agreement with the Kalgoorlie Boulder City Council to use reclaimed water in our process, which once again is a tick on sustainability principles. We expect soon to release the tender for some of our longest lead time items, including the kiln. I think that that's an important milestone in terms of demonstrating progress on this. And we are very well progressed, as I think all of you would know. Concentrate into a rare earths refining process is only about 20% of the input. So making the decision to shift this from Kwantung to Kalgoorlie actually means that we need to be doing a lot of work on things other than just can we engineer the plant and get the concentration back to the front end. So there are various chemical reagents, power, water, and of course we have to consider things like transport. So we're very well progressed on really working out the right supply models for each of those different elements. As we said, it was published quite extensively. The US government via the Department of Defense released a request for tender for the development of a heavy rare earth separation plant in the US. We lodged a compliant tender on the 21st of December, I think it was. And I know that there will be many who will want to know, well, so now what? But I think also there will be many that know that governments move at the speed that governments move, not necessarily at the speed that we would like them to move. So we will certainly update the market as we get feedback from the U.S. government on that matter. But at this stage, we have nothing more to add other than the fact that we have indeed released a compliant tender. We're very pleased with it. We've done, you know, the full engineering and design work on the heavy rare earth separation plant with our head of technical, Ding Zhou En, who has done this previously alongside, once again, our Malaysian engineers. And then I guess just the other thing around the Linus 2025 project, which is worth noting, is that we continue to engage very productively with a variety of governments. We've been sort of absolutely delighted with the level of support, as I said, already from the Kalgoorlie-Boulder City Council. But many of you would have noted that we released to the market just before Christmas, the fact that we have been given lead agency status by the West Australian government. Now, what that means is that within the Department of Jobs, Tourism, Science and Industry or Innovation, which sits within the Premier's Department, we have a project manager who assists us to ensure that we are working through all the appropriate approvals with contact with the appropriate people. Many of you would have also noted that the Premier of Western Australia and the Mines Minister both released direct statements after we announced the Kalgoorlie site and with the announcement of JITSI of the lead agency status Both of them issued announcements that were overtly supportive for the development of the Linus plant in Western Australia. Of course, as part of not only the heavy rare earth development of our tender, but more generally speaking, we continue to be engaged with the US government, the Australian federal government, for those who may have missed it, has actually set up an office for critical minerals and the office for critical minerals is once again designed to ensure that those who are able to assist in ensuring secure supply chains outside of China are given as appropriate assistance from the government and this really is around the fact that the rare earths market as many of you have been involved in it for a long time would know cannot be natural market forces cannot be relied upon it is a distorted market and so therefore government support in one form or another may be necessary and finally of course I must acknowledge the continued support from the Japanese government by way of JOGMEC and JARE, but also generally by way of understanding and supporting us in diplomatic engagements. So then that brings me of course to the least favourite of my daily activities, which is Malaysian regulatory matters. So I think everybody is very familiar with the fact that the license which was renewed only for six months is due for renewal on the 3rd of March, that there are two key conditions, one relating to the construction and management of a long-term storage facility for the WLP here in Pahang, and the other relating to the transition of cracking and leaching processes from Kwantung to another location is all that is specified in the license. Of course, that other location is Kalgoorlie. very progressed with all aspects related to this, with evidence of progress, with delivering the one or two very specific pieces of evidence that the AELB has sought. The AELB has already completed its pre-licence audit and once again rated Linus as very satisfactory which is indeed the highest level rating that can be achieved. I think the other thing in terms of the Malaysian regulatory environment and operating in Malaysia is that we have really redoubled I guess our efforts to ensure that we have really direct engagement with not only our local communities but also important NGOs here in Malaysia. And in the report we've included a list of some of those which I think that you will recognize as being very important in terms of advocating for Linus within Malaysia. So all in all, Uneventful operationally, that doesn't mean not busy because overwhelmingly busy really in terms of executing on our Linus 2025 growth plan as well as all of the work that is required to deliver to the Malaysian regulatory requirements. So with that, I'll take a moment and take any questions.