The public pantomime between Aussie rare earths miner Lynas Corp and its new Malaysian government overlords came to an end this week.
The ASX-listed miner was finally able to confirm what everyone already knew: Mahathir Mohamad’s new government has launched a review of Lynas’s controversial $850 million processing plant, which has been the subject of much acrimony since its inception in 2010.
“We acknowledge the absolute right of the government to conduct a review and will co-operate with confidence in our performance,” Lynas chief executive Amanda Lacaze said in a statement to the ASX this week.
Lynas had not been informed of the investigation at that time, so it was forced to react to reports in the local mediathat a review had been commissioned.
Its shares dived in May when Mahathir unexpectedly defeated his former ruling party. It took another dive last week when it acknowledged press reports of the review, which is being led by Fuziah Salleh, a government MP who has been a harsh critic of the Lynas operation.
The stock has nearly halved in price since May, wiping $900 million from the value of the company. Its shares jumped 9.5 per cent to $1.78 on Friday.
The Lynas plant was one of the projects championed by former Malaysian premier Najib Razak, but it is not the stench of corruption that has triggered the review. There has never been any suggestion Lynas engaged in the sort of behaviour that led to Najib’s wife being charged this week with offences including money laundering.
The main issue for Lynas is the toxicity of the radioactive material that builds up with every gram of ore it refines.
The dirty secret of rare earths is that they are not actually that rare. The problem is the intensive extraction process, which is costly, and the toxic waste material.
This is one reason Lynas is the only processor operating outside China, which has a choke-hold on the market that became apparent in 2010 when it withheld supply from Japan after a diplomatic spat.
And this is where Malaysia’s scrutiny of the Lynas plant becomes a geopolitical issue. Rare earths are crucial for elements of the new economy like mobile phone components, electric cars, batteries. It is crucial ingredient for many tools of the new economy.
“This is probably quite scary for Lynas as well as Japan and other buyers,” Ryan Castilloux of Adamas Intelligence told the Financial Times this week.
The closure of the Lynas plant would be a boon for China in its trade war with US President Donald Trump. A point Lacaze hinted at in an ASX statement this week.
“Our key customers are in Japan, Europe and North America – all important trading partners of Malaysia,” she said.
But at the moment, it is the Malaysians near the Lynas plant who have been doing the worrying over the radioactive material stored on site. Kuantan residents, in the state of Pahang in central Malaysia, fear a repeat of their country’s experience with a rare earth plant built in Bukit Merah. It closed in 1992 and has been blamed for birth defects and a surge in cases of leukaemia, and the largest radiation clean-up in the industry’s history.
Not that Lacaze, who joined the company in 2014, likes referring to the material in such terms.
“Lynas does not produce radioactive waste. The company has a comprehensive residue management plan that has been approved by the relevant regulators in Malaysia,” she said in a statement to Fairfax Media.
Not that this helps Lynas in its battle with the Malaysian government.
This is probably quite scary for Lynas as well as Japan and other buyers.
In a statement this week, which finally acknowledged the investigation, Fuziah confirmed that the three-month review would focus on the plant’s radioactive waste management plan (RWMP) and environmental impact.
“Apart from the RWMP, the committee will also be looking into other aspects of safety such as health impacts, social impacts as well as environmental impacts,” she said.
While public health and safety has been at the forefront of the public protests, it is not expected to be an issue.
As the IAEA reported previously: “The radiological risks to members of the public and to the environment associated with the operation of Lynas Advanced Material Plant are intrinsically low.” Subsequent reports have given Lynas a clean bill of health on this front.
After US, Europe and Japan challenged the country over its export restrictions, China announces plans to downsize rare-earth mining.
But the issue of permanent disposal facility (PDF) is an issue.
“The science behind the storage is solid but the politics/costs are large. Nobody wants this stuff in their country,” said a fund manager who sold out of the stock as Mahathir surged to his improbable win.
The problem for Lynas is that, despite spending the best part of a decade on the problem, it has yet to come up with a permanent solution for the waste.
Lacaze did not directly address the issue of a permanent facility, which may become the heart of the review, when queried by Fairfax Media this week.
“Lynas’ comprehensive residue management plan has been approved by the relevant regulators in Malaysia,” she said. “Implementation of this plan is closely monitored, inspected and verified by the regulators and independent third-party auditors appointed by the regulators.”
It could become a critical issue sooner rather than later if the government decides to close the plant, or not renew its licence to operate, which expires in September next year.
Long-time Lynas investors would be all too familiar with the problems in Malaysia.
Protests delayed the opening of the processing plant in 2012, and nearly brought the company to the brink of collapse. The company’s former executive chairman, Nick Curtis, had loaded up with fresh funds from investors and a lot of debt to bring to life his dream of Lynas processing its own rare earths.
It was only Lynas’s Japanese financiers, still smarting from the China embargo a few years earlier, that kept the company afloat as it got crunched by the production delays in Malaysia, a crushing debt load and crashing rare earth prices.