Lynas Rare Earths Limited

Good day and thank you for standing by. Welcome to Linus Red Earth's quarterly resource briefing. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the call over to Linus Red Earth. Thank you. Please go ahead.

Good morning and welcome to the Linus Reris Investor Briefing for the March 2023 quarter. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. And joining Amanda will be Guardian Sturtzenegger, CFO, Paul Leroux, COO, Daniel Havas, 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.

Good morning everybody. Thanks for joining us today. I think that most of you will have had at least a quick look at today's report and will know that it's got a lot of information. So I'll just step through the key points in a fairly orderly fashion. So actually I've decided that maybe what I'll do is I'll start at the very end, which is really as they say the bottom line, but after a significant investment in our future capability of $395 million year to date, we closed the quarter with $1.12 billion in the bank. And that of course reflects continuing strong demand and support from our customers Some really excellent production outcomes this quarter. Strong cash flow from our operations despite the fact that the price softened over the quarter. Continued very strong support from Jare and Jogmeg, so from our Japanese government partners as well as Sojet and also our Japanese customers. and the fact that spending is on track for our major projects. Of course, the really significant thing is that having $1.12 billion in the bank means that we have plenty of firepower to ensure that we are really well placed to capture upside opportunities via current growth and any other growth opportunities that present themselves And we are also in an excellent place to be able to weather any downside risks. And many others have written on the macroeconomic risks who have much more detail on that than me. Suffice to say, our balance sheet puts us in a good place to deal with any of those risks. So just taking those things one at a time. Starting with the market and starting with demand. I know that there has been a lot of coverage of Elon Musk's comments. Whatever he says appears to be newsworthy. Some of that coverage has included really some quite detailed assessment of what is the real impact of Tesla changing, announcing that they will change their motor technology. Some of you have even done some calculations on that. Suffice to say that from our perspective, we have always known that there are technology choices. I think I've even said to some of you, there is always an alternative, and if there's not, someone's working on finding an alternative. And there have always been technology choices with respect to the use of rare earths, particularly in electric vehicles. The neodymium ion boron magnet technology is the most energy efficient because it is the lightest motor and over the lifetime of a vehicle it gives you the best efficiency. It has the lowest CO2 emissions from the manufacturing process compared to the alternatives and it has the lowest CO2 emissions from the life of the vehicle. So there are many car makers. I know sometimes it seems like there's only one electric vehicle maker, but there are many electric vehicles on the road these days and many different models. And more are choosing NDFEB technology than the alternatives. So today, even with our excellent production outcomes, we find that demand still is ahead of our ability to service everyone who would like to buy Linus NVPR. Of course, across the quarter as well, the price has softened. We all know and expect volatility, and of course it's nice when it goes up and not so nice when it goes down, but that's the definition of volatility. Our assessment on this is that the current softness is very much about internal China dynamics. But we at Linus remain very confident of the long-term trend and we know that the Chinese rare earth firms share that confidence. We remain committed to growing to meet the market and that's one of the reasons why our ambitious capital investment plan continues. So that's a little bit about demand. Just moving into talking a little about production performance. Well, maybe a lot about production performance because really these are some outstanding results today. I can tell you I have never seen our people as energised as they are today, right across the business, in all parts of the business. Those producing today at Mount Weld and Quantan and those preparing for the future actually also in Mount Weld, Kalgoorlie and our US team. And so this quarter we've delivered record NDPR production. I could leave it there because that sort of speaks for itself but really want to point out that this is what we can do when external downtime is not a feature. It reflects the continuous process improvement of our operational teams at each site and also across our sites. So our teams are operating strongly and effectively and we can see that in our results. Of course, the revenue and cash outcomes reflect our strong production and strong demand. And that strong cash flow, as I've said, underpins our capital investment and future growth. I want to take this opportunity to recognise and thank our Japanese partners for their continued support. It's always, support comes in a variety of different ways. It can come from, you know, just sort of saying, well, we support you, Linus. right through to the sort of support that we really appreciate here. There's just over 200 million good reasons for us as investors and as the company to be very pleased about the Japanese commitment to the continued success of Linus. 200 million in equity, which is escrowed for an extended period of time, which reflects the Japanese JARE and JOMIG's belief in the future of our business. So I just like this opportunity to say thank you to our Japanese partners because this is certainly a key part of ensuring that we remain unquestionably strong. So then just looking a little at the major projects, I think everybody on the call would know we have an ambitious program. Our projects are on track. We indicated last quarter that we targeted feed on this quarter in Kalgoorlie, and we maintain that position. Alongside that, the work in Kwantan to be able to receive the new mixture of carbonate feedstock from Kalgoorlie. is well progressed and our Kuantan team will be ready to receive the material as it arrives onshore. In Mount Weld, we've put some pictures in because they always speak a thousand words. I can speak in cliches all day if I need to, I guess. But the pictures, I think, are very informative It's very exciting at Mount Weld to see the major earthworks. We've got some of our first civils with concrete being poured in preparation for our new dewatering circuit. And in the US, we have confirmed that we're in the final stages of all of the activities associated with the acquisition of the site on the Texas coast. And we have engaged an external engineering team to work with us to forward that project. These are all robust and resilient building blocks on which we can deliver sustained growth. But those of you who have been with us for a while would know it wouldn't be Linus if we didn't have a few challenges. And of course, our most significant challenge right now relates to our operating licence in Malaysia. We've already disclosed that the licence for renewal in March included the conditions which were first applied in the fifth operating licence, which had the effect of causing the shutdown of our cracking and leaking lease in Malaysia. The process of appealing against these conditions is, clear and it is sequential. So we have already appealed to the AELB Board. Our next step is an administrative appeal to the Minister and this appeal will be heard next Friday. We are very confident of our grounds in that appeal. As you would know, we have four scientific reviews which have consistently found that our operations in Malaysia are safe, they are low risk, they are compliant with all regulations, and the AELB itself, in every of its orders that it does of our plans, has found that we are very satisfactory, which is the highest rating available. There is not a single expert review which has ever recommended the closure of any part of the Linus facility in Malaysia because simply it is not supported by any scientific evidence. The licence process under Malaysian law should be evidence-based and free from political influence. And so, as I said, we believe that we have a very strong case against the maintenance of those conditions. However, I think as all of you would know as well, any legal process can be uncertain in terms of time and also in terms of outcome. So we have been working on alternate scenarios for some time. So of course, the best possible outcome is that we have two cracking and leaching plants operating, which gives us a big immediate step up in our capacity in that part of the process. It won't be without its own challenges as we optimize across two sites, which will be performing at different levels with different cost profiles, but nonetheless, that's a problem that we'll be delighted to be managing. The other option, which is where we only have our Kalgoorlie plant operating, of course, is more challenging. And the scenarios that we've developed there include an assessment of the feed-on date and then also on the relative speed of ramp-up So we've looked at what happens if it's a relatively slow ramp up, more akin to the sort of timing that it took us in Malaysia through to what if it looks like sort of the type of ramp up that you would expect in a business where you've got mature technology and known capability. We do expect that we should reap some benefit from our 10 years of operations and experience in Malaysia. As I've indicated previously, our focus as we look at these different scenarios and the actions that we might take remains on how do we manage our inventory to meet the needs of our key customers. It's become increasingly clear that if LAMP CNL is required to shut down on the 1st of July, we expect to be shut down from about mid-July into August in Malaysia. That reflects the fact that we get the first feed on in Kalgoorlie this quarter. However, we need then to build sufficient stock for a shipment. And then we have the shipment timing, which shows us that we're going to be looking at August feed on at the land. Of course, once we restart the facilities, the downstream facilities in Malaysia, the production profile of finished goods will align closely to the ramp up profile at Kalgoorlie. And as we've said, ramp-ups are intrinsically unpredictable before you start them. We expect within a couple of months we'll have a very good assessment of that. So we currently are planning lower production for at least the first quarter and probably into the second quarter. I know that many of you will ask me, well, how much lower? And I'll say now we cannot quantify that exactly until we have commenced operations, but we will be able to update as we move through the ramp-up process. Importantly, today we have sufficient finished goods inventory in the pipeline to meet the needs of our key customers during this transitional stage. And as we have indicated in this report, we plan to sell the relevant inventory, particularly for our Japanese customers, to Sojits during this quarter for distribution as required. So for modelling purposes, we will see normal sales this quarter, but lower sales next. Of course, we remain very optimistic that this plan will be redundant. Once again, our operations are safe. We are a very strong contributor to the Malaysian economy today. But equally importantly, the Linus plant in Malaysia offers Malaysia opportunities for development of both upstream and downstream industry. If our cracking and leaching plant is shut, those opportunities will be shut down as well. And we believe there are many in Malaysia today who understand that. So as quarterly activity reports go, I'm really proud to present this report. Really excellent production, good sales, strong cash flow, progress on all of our major projects. And that gives us a really solid foundation on which to continue to grow. So with that, I'm very happy to ask questions. I'm joined here today by Daniel, Paul, Gavin and Sarah, who are all ready to answer questions if there's any further detail required.