Lynas Rare Earths Limited

Thank you all for standing by and welcome to the Linus quarterly results. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question at that time, you'll need to press star one on your telephone. Please be advised that this call is being recorded today. And I'd now like to hand the conference over to Linus Rare Earths. Thank you. Please go ahead.

Good morning and welcome to the Linus Reris Investor Briefing for the September quarter of FY 2022. Today's briefing will be presented by CEO and Managing Director Amanda LaCasse. And joining Amanda today are Garden Sturzenegger, CFO, Daniel Havis, VP of Strategy and Investor Relations, and Sarah Leonard, General Counsel and Company Secretary. I'll now hand over to Amanda. Please go ahead, Amanda.

Thanks Jan. Good morning everybody and a special hello to anyone who's joining from Melbourne and maybe you aren't joining today because you're too keen to be out and about and making the most of the end of your terribly prolonged lockdown. Anyway, thanks for joining today. Pleased to be able to present the quarterly results. We've delivered our second highest revenue quarter on record and that's reflecting very strong demand and high prices. And I guess one of the things that's really got us pretty enthusiastic is that our customers are very optimistic about future continuing demand growth we continue to see a lot of strength in the price. As we think about, however, some of the challenges that we dealt with through the quarter, it was definitely the most difficult of the pandemic. In Malaysia, the third wave of the pandemic was almost completely contained within the quarter. You know, we started at about 5,000 cases a day. in Malaysia, we peaked with an extended period around about 20 up to 22,000 cases a day. And then by the end of the quarter, we dropped back down to about 5,000 cases a day. And of course, that reflected significantly increasing vaccination rates in Malaysia, including, of course, within our own workforce. But During the period of time, and it was several weeks where we were looking at these sort of 20,000 plus or minus cases every day, it created really an everyday pressure for our people. And it did mean that there was a lot of infection in the communities. Some of our staff were exposed to it. We run our own very careful track and trace program. And so in some instances, we had staff having to isolate because they had close contacts, either with their colleagues or family. I'm really pleased to say that all of our staff who did suffer from COVID have recovered. But as we've noted in the reports, Where we did have staff isolating, it tended to be to take our whole crews, you know, who had been in contact with each other. And so whilst we redeployed staff across the site wherever possible, there is a limit to the number that you can redeploy. Say, for example, it's hard to take a technician and put them into our lab doing some of the highly skilled work required there. Of course, there's a lot written about some of the effects of the pandemic, particularly on shipping, exacerbated in Australia by some of the continuing issues on the waterfront with industrial unrest. But for us, the biggest issue relates to the ability to get containers and by extension ships as well. We were pretty excited at one stage, we got up to about 35 days concentrate cover on site and we thought this was all over Red Rover, but now we're sort of seeing further tightening in shipping, which is presenting a few challenges for our logistics manager. Notwithstanding all of the above, as the pandemic effects receded in September, we're very pleased with our production outcomes in Malaysia and are seeing that continue into October. In Australia, we will absolutely do our part in complying with the Western Australian government's vaccination mandate. As most people would be aware, the Western Australian government has now issued orders for mandatory vaccination for all fly-in, fly-out workers. We support this certainly philosophically in terms of managing a safe workplace for our people and the fact that we are operating in a remote location and certainly would not want to in any way introduce any illness into the local population. So we're very happy to comply with the Western Australian mandate and hopefully that will mean that travel in and out of Western Australia will start to happen again early in the new year. Provided a couple of other updates in the report on Kalgoorlie. It's very exciting that we've now had the EPA recommend the project for approval. Of course, there are still some final steps around this, including receiving the ministerial statement. But as I said, it's great to pass through that gate. We've shared some photos in the report The aerial photo is sort of showing the work which has already started on site in compliance with the minor and preliminary works approval. You can see our giant kiln. It's well and truly on its way to Australia on a specially charted ship and we believe that we will be in good shape to receive that when it lands. I can't wait to see it in person. I'm at present sitting out a couple of weeks in Adelaide ahead of being able to get into WA shortly for an extended stay. Quite interestingly, many of you... Previously, many of the analysts have asked why we're not spending more at Kalgoorlie and, you know, we're very... confident with the rate at which we have let our tenders. We have placed all of our orders for long lead time items. So some of the concerns about, you know, sort of cost overruns in that area, you know, we've got a great deal of confidence because those orders have been placed on agreed contracts and pricing. And we've got over 70% of our total equipment requirements have been tendered and contracted. So for those of you who were a bit worried about not spending more, you will see that we do actually have a higher capex spend this quarter than we've had previously. And we expect that to continue to accelerate as we continue to accelerate works on site. We've also made good progress on approvals for the now preferred site in the Giving Industrial Estate in Malaysia for the PDS. So the EIA there has been lodged and is out for public comment at present. All in all, a lot of progress in a time when I think all of us are just wishing that we no longer ever had to say the word COVID and certainly not with respect to business performance. But we're seeing our way through this. The vaccinations of our workforce give us a lot of comfort and confidence in our first objective, which is to ensure that their safety and health, but as well as that to ensure the continuation and indeed acceleration of the business as we meet the market. We at Linus did our heavy lifting over the past few years in terms of standing up our facilities, sort of optimising operation of those facilities, really becoming expert in processing our materials. At the time, we aimed to ensure that we were ready to bank the benefits of market growth as we moved into what we have always known would be a rapid growth phase in the market. We are now seeing that inflection in growth in the market. We think that it's going to be particularly exciting over the next three to four years. And we're ready to take advantage of that growth. And with that, I'd be happy to take any questions that people might have.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you need to cancel that request, please press the pound or hash key. Our first question comes from Daniel Morgan at Baron Joey. Please go ahead.

Hi, Amanda. First question, well, congratulations on the EPA recommendation. That's a huge step forward. Just wondering if you could comment on the capital cost estimate of $500 million, which was given a while ago now, and what obviously everyone can see in the market is a very tight market in WA for employees and contractors, and just wondering in light of that, What can you say about that budget of $500 million? Thank you.

Hi, Daniel. Welcome back. I guess the roses are looking good after all that time in the garden.

Yes, they are. I'm back there.

So, yes, I'm aware that there is a lot of speculation about whether we will do as we have planned. done previously which is bring projects in on time and on budget um at this time we and you know one of the reasons why i sort of stress the fact that we've got our uh you know sort of all of our long lead time items ordered 70 percent of our total equipment um you know we've showed the photo of the site so you can see we are starting to make progress We have nothing to add to the guidance that we've already given that we expect to bring this project in on time and on budget.

So on the staffing, the people that are going to need to erect all the equipment that's going to arrive and the contractors I presume that are involved, what can you say about organising, mobilising them in light of approvals being imminently granted.

Yeah, so we've talked a little bit about this previously and the fact that we are managing this project in-house and so we've packaged the work into specific packages. So, for example, we've contracted a particular supplier to do the kiln work fabrication. You know, it comes in five parts. It needs to be welded and lifted into place or lifted into place and welded is probably a better order to put that. And so, you know, because we're managing this and we're able to construct those packages in a way, we talked about this previously, that allows us to engage local businesses and oftentimes they will tend to have more stable workforces. And for example, if we're operating in sort of a contractor space where people are competing for the same workforce. So we are engaged with the city of Kalgoorlie on things like accommodation options for sort of peak workforce periods in the construction phase for the project. But we are also working very hard and this has always been part of the reason why we're at Kalgoorlie is that we want to be part of the community and we want to be driving economic benefit into the community. So where possible, we're using local suppliers.

And how much, I can obviously see how much cash you've spent on CapEx, you know, through your cash flow statements, but how much has been spent on Kalgoorlie, that project so far?

Well, we haven't disclosed that, but we have disclosed that we've placed orders for 70% of our total cap equipment and 100% of our long lead time equipment. So that gives you a bit of a headline on that. And for us, as we look at this, we think about it on, you know, if we think about things like S-curves on things like earned value, you know, we're probably 30% to 40% of the way there, even though, of course, we manage our cash. We don't see any reason why we should be you know, sort of spending money fast just so people think that we're moving through things fast. We are moving through things at, you know, a pace and we're getting, you know, sort of very good development. And once again, it's one of the reasons why we've shown the photos. So I understand that everyone... I understand that there's a lot of speculation about this and whether we can do this. I'm not quite sure... why there's so much speculation. We have a track record of delivering our projects on time and on budget and we're providing sort of briefing on really the progress that we're making here and we have reaffirmed the fact that we expect to do this on time and on budget as we've done all of the other projects. And we'll tell you if there's something that changes that. But, you know, I mean, all of these things, you just have to do things as you do them. And we are doing these things as we do them and we're letting the market know that we're doing it. I mean, I remember someone speculating that there was no way we could possibly get a kiln produced in the middle of a pandemic. And guess what? It's on its way. You know, so I think we...

have some track record here.

I appreciate all that, and I think the questioning is just extending from industry trends that we're seeing, not necessarily your handling of them. It's a very tough environment in WA, I think. Just maybe switching tack, just on the operating rates, now you had a tough quarter on that with COVID and logistics, etc. It seems like that was improving towards the end of the quarter. You said that improved into October. Just wondering if you can run harder than the 75% through to the end of the year or is logistics still a problem?

The plant can do it and our big challenge will be in a couple of specific areas related to logistics. And we're all over it, I've got to tell you, and we're looking at alternate strategies to be able to manage this. But, you know, Malaysia is a... You know, we certainly... The Malaysian government has moved to, you know, living with COVID, i.e., you know, treating it as an endemic disease rather than a pandemic... That gives us more confidence about the way that we're going to be able to manage our operations there. But certainly we probably have more challenges on shipments from Australia to Malaysia than virtually any other area. So, you know, we're working on alternate strategies to mitigate some of those risks. We're keen... We're as keen as anybody to dial up those production rates and confident that, you know, we can do it. So as long as we get all of the, you know, sort of feed, all of the inputs, you know, which is probably, which as I said, is one of our major challenges, just getting all of those inputs on site, you know, at the right time.

Yeah, sure. And just last question somewhat related to that is it would appear that, I mean, you haven't to date been running at full capacity or what your licensing would allow you to do, which is a calendar year license. I'm just wondering if any unused portion of that that you wouldn't use this year, you know, does that carry over or is that lost at the end of this year? Is that potential lost at the end of the year?

We have a conversation with the regulators on that. We had a conversation with the regulators on that last year because it was an unusual year due to the pandemic and we agreed that we could carry over some of that. And we will have a further conversation with the regulators this year, but ultimately it's within their decision. But given that the regulation primarily relates to quantities of residues produced, then we believe we can have a productive discussion with them.

Okay. Thank you very much for your answer.

Thanks, Danielle. Our next question comes from David Deckelbaum from Cowan. Please go ahead.

Good morning, Amanda. Thanks for taking my questions.

It's a pleasure, David. How are you?

I'm doing well. Thank you. So I'm curious on, you know, last caller asked on the same question about run rates now. I think you had alluded to in September that operating conditions have improved significantly. I guess I'm also curious It appears that some of the production issues, one, would be just related to staffing and COVID-related shutdowns, but also the difficulty in obtaining perhaps some of the chemicals associated with cracking and leaching and some of the logistics surrounding some of the processing inputs. Has that situation abated at all, just given some of the ongoing global shipping woes? I guess we're just trying to get the sense of it's one thing to have better uptime at the plant, but is there still kind of a constraint around necessary inputs to your process?

Thanks for the question, David. Where we've been able to, we've mitigated this by building additional inventory. And so we are carrying more inventory. And for those who sort of just track cash costs as opposed to when we put out a half-year lease, and a yearly, we provide a truer cost picture, we'll see that, you know, sort of cash costs have picked up a bit and one of the reasons why is because we've increased, you know, onshore inventory for a number of the inputs and that's a way for us to mitigate some of that logistics risk. But there certainly continue to be challenges and we have to manage it very closely. And at this stage, we're cautiously optimistic that we've put sufficient mitigations in place that this shouldn't handicap us. But, you know, much as we want to click our heels three times and say the pandemic is over, unfortunately its effects are lingering.

Sure. Indeed. Understood. And then maybe just pivoting a bit, you talked about Calgary at length and then just talking a bit about some of the other 2025 projects. United States, some of the expansion there, can you talk a bit about just the merit evaluation and maybe just some expectations around how that process is going and what sort of milestones we might look towards for the rest of the year, or perhaps into 22?

Sure. I can. I probably can't give you much satisfaction. I would start by saying I am pleased that I don't work in government because timelines are It seems, you know, sort of infinitely flexible. And so as we look at this, as I said, you know, we met our milestones for submission and material. We've provided further material. I think that we know that the merit review is ongoing. And so... We expect that some of that will be tied up with the US budget determinations and timelines. So unfortunately, at this time, I can't give you sort of milestones for when decisions might be made. other than to say that we're now increasingly sort of confident of our ability to mobilize pretty quickly once a decision is made.

Understood. I appreciate the answers, Amanda.

Okay. Thanks, David. I'm sorry I can't give you something more definitive on the U.S. We'd be enthusiastic to be able to do that, but... You know, we'll just respectfully await, you know, sort of the determination from the group, from the government.

Understood.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone. Our next question comes from Tom Sumatsu. Please go ahead.

Good morning, Amanda. Thanks for taking the time to take my questions. I've got two questions. The first one is in regards to at 100% of next production rate, are we still in compliance with the regulatory caps that we have in Malaysia in terms of how much Linus can produce?

Hi, Tom. No, we've talked about that once previously that if we were at 100% of next, we were seeking an uplift in the processing license. There are two separate licenses associated with our operations. One is the license to import lanthanide concentrate. That's granted by the Ministry, but will actually go the AELB, and the other one is a processing approval, which is granted by the DOE. And we've not tested those levels over the last couple of years because of the effects of COVID. And so from the end of next year, we'll start to be getting a little of the rare earth carbonate that will be coming through from Kalgoorlie. So we actually don't see this as a constraining factor on the business at this time.

Okay, okay. And I noticed that I haven't had the opportunity to go through the entire EPA that was approved, recommended for approval in WEA, but I think there was mention of One of the conditions is that the waste is now sent back to Mount Weld. Am I right?

Yes. Can I just check, where are you from?

Tokyo.

Right, okay. From where?

Bluebird. Bluebird. Yeah, Bluebird Capital.

Okay, thank you.

Yeah, no problem. Yeah, so in regards to the waste from the processing site in Kalgoorlie is going to be sent back to Mount Veldt, am I right? And if yes, what would be the impact on your expected cash cost? Is it going to move it up or move it down or is it going to be neutral?

So there are a variety of different effects from operating in Australia. There are some costs which go up and there are some costs which go down. The proposal as it stands that we submitted to the EPA for consideration and which they have recommended for approval, includes backloading material to Mount Weld. And of course, you know, we're loading material down from Mount Weld and so we have a backload opportunity there which is, you know, which will, I think, work well for all involved in the process.

Okay, that's great. Thank you.

Thank you. Thank you so much. We have no further questions. So, Amanda, I'll hand back to you for closing comments.

Okay, terrific. Thank you, everybody, for joining. And if there is anything, any further discussions that people would like or, you know, sort of more background, please don't hesitate to contact us directly. And, you know, Danielle, who's looking after... our strategy and investor relations and we'll be pleased to speak with you.

Thank you all. Thank you so much. This does conclude today's conference call. Thank you all for joining. You may now disconnect.