Earnings Transcript for LYC.AX - Q4 Fiscal Year 2023

Operator: Welcome to the Lynas Rare Earths Full Year 2023 Results Briefing. [Operator Instructions] Please be advised that today’s conference is being recorded. And I would now like to hand the conference over to Lynas. Please go ahead.

Unidentified Company Representative: Good morning, and welcome to the Light Rare Earths investor briefing for the 2023 financial year. Today’s presentation will be presented by Amanda Lacaze, CEO and Managing Director. And joining Amanda will be Gaudenz Sturzenegger, CFO; 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.

Amanda Lacaze: Thanks, Jen. Good morning, everybody. And as always, thank you for joining us today as we talk about our results. I’m sure that many of you would have already read all the material, which has been uploaded to the ASX. And you will see that in the year that’s just passed, we’ve had some highlights, and we’ve had some lowlights. I’m sure there are many questions. But before I take those questions, let me speak a little bit to some of the highlights and lowlights. You will have seen that we have described this as a productive year. And for anyone who’s ever done any releases of any sort, you would know that we spend quite a lot of time thinking about what’s really just the right way to describe the year that was. And so we feel that productive is a very good description. Operationally, we had a very productive year, but we also made significant progress on our investments for the future. If we look first of all at our operating performance, it was indeed a highlight. In the year of two halves, in the first half, we had lower production, significantly affected by things like an ancient memory now, but the water challenges that we had in Malaysia when there was a huge burst water line and higher prices. In the second half of the year, we had record production outcomes in an environment with lower prices. And the outcome of that was that our second half revenue and profit was pretty much equal to our first half, despite the significantly lower prices in the market. And that really demonstrates the strength that we have from our operating base and our experience. Mt Weld performed extremely well throughout the year with record production. That’s really important because it means that Mt Weld was able to not only feed our Kuantan facility but also to build a stockpile for the startup of the Kalgoorlie Rare Earths Processing facility. And if as we indeed certainly hope, we are in the near future operating two plants, then this bodes very well for us to be able to feed those two plants. In Malaysia, the water problems have been put to bed for now. And we saw in the second half of the year when there were none of those external factors actually reducing availability that we were able to record production quarter-on-quarter with 1,860 tonnes in the final quarter, which was really an outstanding result. Now our focus turns to really continuing to optimize and improve the efficiency of both operations so that we can ensure that we protect our ability to succeed even when market dynamics are less favorable. As we then look to preparing for the future, well, yes, there are many highlights and some lowlights. We have a very ambitious growth program with our first large-scale projects since Mt Weld and Kuantan were constructed a decade ago. And so the projects have been ongoing on each of the sites so the growth program at Mt Weld, the very large installation that we’re constructing in Kalgoorlie and, of course, additional work in Malaysia to ensure that it is prepared to receive the Mixed Rare Earth Carbonate from our Kalgoorlie Rare Earths Processing facility. At Mt Weld, we continued our drilling program. And it’s a program in two parts. So we are drilling out the ore body to improve our understanding of the current deposit and to undertake a proper update of our resource and reserve statement. In addition, we have the true exploration program as we move further into the carbonatite to truly understand material there, its economic profile and the ability for that to once again give us an opportunity to revise our mine life. Our capacity expansion at Mt Weld is on track. And in the presentation, we’ve included some photos from July, which actually show major earthworks, a significant amount of the concrete actually poured and this is all in line with the early works approvals that we have received. In Kalgoorlie, we have highlights and lowlights. We are on the home stretch to completion of this facility only the waste gas treatment plant is still ongoing in terms of final construction. During the progress of this project, we have sold for a number of difficult issues. For example, we have not been able to get our gas come down the pipeline. We’ve had to make changes to our project to have on-site gas. We faced some issues with things like, for example, how the earth compacted as we were doing our dams associated with the facility. And we have taken the opportunity as we’ve moved through the project to progressively improve some elements of the design, some for safety and some for capacity. The outcome is that today, and this is definitely a highlight is that we’re able to announce that we have 30% -- approximately 30% uplift in nameplate capacity to about 9,000 tonnes per annum. The lowlight, of course, is our announcement on a further increase in the cost to complete. I know that you are all very much across the issues with cost inflation on projects in Western Australia we’re not Robinson Crusoe as far as this is concerned. We certainly went into this with a great optimism that by putting certain controls and strategies in place, we would be able to avoid some of those sort of general price cost pressures. And indeed, I think we have done so relatively successfully in some areas. But the key for really why we’re now as we come into the home stretch, looking at a further uplift in our forecast cost to complete is really our compressed time line. I think, as everyone knows, the project has always been scheduled to meet an arbitrary time line determined by the Malaysian operating license. That’s been further exacerbated by some of our early challenges, for example, getting final approvals, which was later than in our original project schedule, and that’s seen us having to backload our work schedule. I’ve spoken before about running some areas of the construction on a 24/7 basis. And I think everybody knows that, that doesn’t come free of cost penalty. The license variation, which was announced in May, gave us some relief that is still a very challenging time line, and we’ve had to apply significantly more resources as we approach completion. As detailed, we expect it will now be approximately $730 million. That’s on a like-for-like basis versus our original forecast for this project. But it will give us an approximately 9,000 tonne per annum capacity compared to the originally envisaged 7,000 tonne per annum capacity. And the delay in startup leads to us having to capitalize some additional commissioning and pre-commissioning costs. We’ve put our operating team in place ahead of forecast startup. And whilst they are very, very productively utilized in the commissioning process that does see us having to capitalize some of those costs. But I guess, in sort of summary, this is a really significant facility. It is the first of its type in Australia, and we have designed it for growth. Today, we’re announcing the uplift in nameplate capacity, but we actually have designed this facility in a way that gives us the opportunity to both grow capacity and also grow activity. So it truly is a foundational investment. And we think it is an investment very well made. Of course, the other exciting news on our growth projects is in the U.S., which is referenced in this -- in today’s outcome as a subsequent event, that I think you’re all very much across that. The new contract that we signed and announced earlier this month is a cost recovery the contract, which shows the U.S. government’s commitment to completing this task. In Malaysia, and you’ll see the photos in the presentation, we have done significant works to ensure that we can receive and process the Mixed Rare Earth Carbonate from Kalgoorlie. And we have taken the opportunity there to put in some additional capability, for example, soda ash receival and management and some other actions, which will contribute to our continuing cost efficiency on that side. On the Malaysian license, we do continue to engage generally very productively, I think, with both federal and state governments in Malaysia on the importance of the rare earths processing industry as source of growth to the Malaysian economy and the importance of Lynas operations as part of that. And I really would encourage you all to click through on to YouTube and see the 10 years in Malaysia ad campaign that we’ve got airing on television and also online at present. Of course, the other thing which is included within the report and which is a matter that I know all investors are interested in as well as sort of what we’re doing in terms of ESG. We have a very strong culture and commitment to each of the E, the S and the G. And I think that it is really important. Quite often, there’s a lot written on ESG governance as it is something which is forced from the outside in on to organizations. In our case, this is not an external condition, but an internal drive. Our people are absolutely driven by their commitment not just to our communities but also to ensuring that we run operations, which is safe and environmentally sustainable, whether it’s environmental issue -- environmental initiatives, for example, tree planting in Kalgoorlie, educational initiatives back-to-school program in Kuantan, solar kits for primary age children in Kalgoorlie, sports like our -- wonderful sports carnival that we have each year in Kuantan [indiscernible] trying to teach the soccer and locals had a kick at NFL footy that was sort of interesting and had some spotty success or just making sure that our people are front and center in our volunteering activities. It is our people who drive our commitment and our culture to meet what is expected by the external world in terms of ESG. And we do it because it is the right thing to do. So as I said at the beginning, we see this as having been a very productive year. We are now phasing into a transition year as we look at -- we have a couple of different scenarios, but the current plan is one when we get Kalgoorlie up and running, and then we transition to that as the feedstock for our downstream operations in Malaysia, continuing work at Mt Weld and also commencing the project in the U.S. And this is all about ensuring that we are match fit for the future because we have absolutely no concerns at all about the fact that this market is going to continue to grow in value and in demand, and we need to make sure that we are ready for the next year when the market dynamics are as positive as they were last year. So with that, I’m very happy to take any questions.

Operator: [Operator Instructions] And our first question will come from Chen Jiang of Bank of America.

Chen Jiang: A few from me, please. Firstly, on Kalgoorlie nameplate, 9,000 tonne per annum. But Lynas target is to achieve 12,000 per annum by FY ‘24 -- sorry, FY ‘25. I’m just wondering what’s the contingency plan where the recent condition from Malaysia is unsuccessful? And how should we think of Kalgoorlie additional CapEx required and time line to produce 12,000 tonne plant of NdPr? I have another -- I have two more after this.

Amanda Lacaze: Thank you. So yes, this is a very good question, and we continue to fit the pieces of the jigsaw puzzle together in terms of ensuring that we have each of the different stages of production aligned. As we look at each of these capacity growth initiatives, we look at what is the optimum step in the first instance. So for example, as we think about moving through from the current sort of 7,000 tonnes up to, say, the 12,000 tonnes, we could have said, well, just go to say 10,000 tonnes in the first instance. But it -- project planning, design and efficiency said best to go to the 12,000 tonnes. In terms of the Kalgoorlie facility, our first milestone was that we needed to make sure on a risk management basis that we were able to at least replace what we did in Malaysia. But as the project has progressed, we’ve actually made decisions, and we’ve disclosed those previously to allow us to confidently provide the target uplift in nameplate capacity. Now further investment in that whilst we are still in ongoing discussions with the regulator in Malaysia, we feel would not be prudent. However, as I indicated, the Kalgoorlie facility is sort of a really substantial foundational facility, which gives us room to grow both in terms of capacity and activity. But we’re not positioned to disclose specifically how that would operate today, but we are in a position to disclose the 9,000 tonnes per annum.

Chen Jiang: Sure. And another one, Kalgoorlie again. The CapEx increased to $730 million. I’m wondering if you can provide any color how much is due to inflation? And how much is due to additional cost you mentioned? The additional costs incurred to accelerate the schedule in order to meet the deadline by the Malaysia operating license.

Amanda Lacaze: So the major portion is associated with increased resources to meet schedule.

Chen Jiang: Right. Okay. And how should we think about the operating cost in FY ‘24 at Kalgoorlie, which is still early stage. Understand labor and utility costs will be higher versus you operate from Malaysia. Is there any indication what expected like like-for-like such as your chemical reagent costs from Kalgoorlie versus what was achieved in Malaysia?

Amanda Lacaze: Yes. So we haven’t disclosed that at this stage because there is a lot that goes on as we actually go through the commissioning process. But as we think about inputs like reagents, for example, what we find is that the price we’re able to get very close to the inputs in Malaysia, but we are still working on optimizing logistics because land side logistics in Australia are really quite expensive. And that does give us a cost penalty on those elements. As I said, we’re very focused across all three sites on continuing to drive down costs to ensure that we can be successful. It will be some time before we’re able to really be definitive on the cost structure in Kalgoorlie because, of course, in the ramp-up phase, there’s going to be significant penalties associated with that ramp-up phase. We know what is the theoretical gap today between sort of a plant, which has been operating for 10 years in Kuantan and has been optimized on several occasions through that versus a start-up plant in Kalgoorlie, but it would be misleading to sort of use those as being the basis for ongoing operations. So we’re working on it. But I think it will take us about 6 months after the plant has been started before we would be able to give any sort of reasonable guidance on what we think the medium term stable operating costs are going to be.

Operator: Our next question will be coming from Levi Spry of UBS.

Levi Spry: Some good questions there already. So just on Kalgoorlie. When we think about the $50 million of capitalized operating costs, can you talk to some of the assumptions that are behind that? I guess the main one being time. But -- and also how long you’re capitalizing them to what rate of nameplate capacity, I guess?

Amanda Lacaze: Sure. So those -- a number of those costs have already been -- actually, when we do our quarterly reports with cash flow, I mean, substantive part of that, about 60% of that has already been expended. And as we’ve indicated in the announcement, that includes -- we have close to a full operating team. We’ve sent many of them to Malaysia for the training. We’ve had a lot of work -- we’ve actually had to do all of the work on sort of operating manuals and all those sort of things. And that team is in fact assisting in the commissioning process. We also have first fill has been completed. So we have [indiscernible] edge silos, and we have gas and the LPG And we have -- I think we have some acid in the sulfuric acid. We clearly have water and a whole series of those sorts of things, which if we had commenced earlier, would have already sort of converted, but accounting principles being as they are says that these expenses will be capitalized until the plant commences operation of its purpose so which to that effect. So we retain sort of our target date of end of September, but we’re clearly in providing this sort of guidance have sort of allowed some buffer but really, it is about ensuring that we don’t have to come back and give you a different set of numbers.

Levi Spry: Okay. So still on track end of September and all of the costs are now included to make that happen.

Amanda Lacaze: Yes.

Levi Spry: Okay. And then just thinking about the mine, I guess, can you just remind me what the capital estimate was for that? And I guess, what stage that is at? So how much is left?

Amanda Lacaze: Sure. So in terms of the processing facility at Mt Weld, the forecast total project cost is about $500 million. We’re still waiting for the final life of mine approvals, which actually encompass our ability to put some of the activities, which are part of the expansion outside of our current disturbance footprint. And so the works, which have been undertaken to date, the early works in accordance with EPA approvals. So that includes the bulk earthworks. It also includes sort of fair bit of concrete already being poured, and we have started there and we lodged orders for long lead time items now almost 12 months ago, particularly for our filter press -- filter building because it’s a more remote site in Kalgoorlie when we did similar things we constructed on site. At Mt Weld, we’re doing a lot of module of work off site, which we will then bring on site for construction. So it is part of in the financial report. We’ve indicated that we expect in FY ‘24. We’ve got about $600 million in capital will be spent and the remaining -- and we expect that we will cover within that a lot of Mt Weld, although it will go through to the end of calendar year FY ‘24.

Operator: Our next question will be coming from David Deckelbaum of TD Cowen.

David Deckelbaum: I wanted to just ask a question just to clarify on the capacity uplift at Kalgoorlie. When you all gave a project update in October, I think you said that you are upgrading equipment and you had increased the budget at that point by, say, $50 million or so or $75 million or so. Now I guess the update is we’re at 9,000 tonnes of capacity. I guess could you give some color was 9,000 tonnes per annum always a number that you were just risking around? And as you get closer, you just have more confidence around this? Or has something happened with the compressed time line that you’re adding extra dollars to accelerate that capacity expansion?

Amanda Lacaze: No. So, option A is more the point. So when we started off, we looked at this and we said, -- and our project directors sort of says painlessly, you only get one chance to be at the bottom of the cost curve, and that’s when you construct. And so as we specified equipment right from the beginning, we specified it with a keen eye on the fact that we -- whilst we needed to have a schedule that us be able to replace the Malaysian capacity that we face into a growing market. And so therefore, having a facility which is able to grow in terms of capacity is really important. So in some of the initial equipment specification, we certainly had our eye on this ability to be able to upsize the facility. When we made the update last October, we had identified additional areas where we needed to make additional investments to be up to support that. And then just, as you’ve said, David, as we’ve got closer to it, and we’ve got the facilities in place, we have now the confidence level to speak to that being the nameplate where -- when we started the project, it was an option.

David Deckelbaum: I appreciate that. That’s helpful color. I guess just the follow-up for me in that context is the $500 million anticipated spend for the Mt Weld expansion, given that estimate is about a year old at this point, how do you think about like the contingency around that budget? Or is that easier for you to control on the upstream side and have confidence around when you’re not racing towards a deadline?

Amanda Lacaze: Yes, your second point is certainly relevant. I mean we don’t have a requirement there racing towards the deadline to just sort of put additional resources and to have more crews deal with some of the contractor management issues and the way that we’ve been required to deal with them. It’s also a brownfield site. And so therefore, we face a different set of challenges, but we have a much greater familiarity with what we’re doing. In Phase 1, so we think of sort of Phase 1, which is this early work phase and then Phase 2, we have had some draw on the contingency. However, we still have contingency headroom, but the team is currently conducting a further cost review on that as well to see whether there’s going to be any further changes, but there’s quite a different set of challenges associated with that project compared to the project in Kalgoorlie.

David Deckelbaum: If I could just sneak, do you know when that cost review will be completed by?

Amanda Lacaze: Soon.

Operator: And our next question will come from Austin Yun of Macquarie.

Austin Yun: My first question was also on Kalgoorlie project. I was just wondering for the remaining capital and also the commissioning cost at Kalgoorlie, how much of the spend has been locked in as we all know that inflation remains quite sticky for the next few months or in the very near term?

Amanda Lacaze: We’ve spent a lot of time pulling this to pieces and understanding exactly what sits in outstanding purchase orders, what sits within what we think will be claims from contractors and what we see as further costs to completion. So the amount, which is still at an estimated rather than at an actual level, is quite small within that overall number. I mean I think everyone would expect that we’re a month or so out. So if we didn’t know actually what the costs were now, then that would be problematic.

Austin Yun: And the second one is on the grants received during the year, which was $15 million. Wondering if you could provide some color on that and how to think about that grants for the next 12 months?

Amanda Lacaze: So the grant money is just come back in as we actually complete. The grant money in Kalgoorlie was specifically related to one process element, which was the carbonation circuit and a noble flow sheet, which we’re implementing there, which I’m not going to share with the world at large, but which is -- this is granted under a scheme which was for novel development, new initiatives in Australia. So we simply claim that back and at this stage, I think that we’ve received about $10 million out of the $14.9 million or thereabouts.

Operator: And our next question will come from Paul Young of Goldman Sachs.

Paul Young: Amanda, I’m trying to figure out now with this CapEx increase at Kalgoorlie, what the total capital outlay could be for Lynas 2025 to achieve the 12,000 tonnes? We have the 780 on Kalgoorlie, the 500 as it stands today on Mt Weld and you previously sort of outlaid some -- indicated a modest sort of capital to expand LAMP. And then we have possible debottlenecking of brownfield CapEx for Kuantan cracking and leaching it. And also possible CapEx the Light Rare Earths refinery in the U.S. So -- and I know you’re probably trying to figure out this as well as it stands based on the options. But do you get a sense of what the total capital will be to achieve minus 2025?

Amanda Lacaze: So we have given guidance within -- ending indication within the financial reports under capital commitments where we’ve affirmed an expectation that we will spend $600 million in the year ahead. And we have not provided further cater of the following year. But we will -- but this year still includes Kalgoorlie. It includes sort of the bulk of Mt Weld. It includes the lab sort of activities at the lab, as you’ve identified. We’ve disclosed previously that our share of the Light Rare Earths in the U.S. is about USD 30 million. I expect that, that will come into FY ‘25 or maybe at the very back end of FY ‘24, but we expect it’s about $600 million this year, and it will be something less than that the following year.

Paul Young: Okay. And then maybe just switching to the U.S., I mean, a great update on the -- I guess on the U.S. Department of Defense funding -- additional funding associated with the Heavy Rare Earths plant. Just curious around the Heavy Rare Earths plant and have you thought through around what you go downstream steps 5 or 6 of the value chain? Will you look at metallization and magnets partnerships there? And how should we think about the government’s involvement in underpinning a floor price on the Heavy Rare Earths?

Amanda Lacaze: So in terms of downstream, Paul, it’s a really good question because that this vision to be mine to magnet is actually been around -- Pol is not joining us today because he’s got some visitors on site in WA. But he sometimes says to me the first time he saw a PowerPoint slide talking about mine to magnet was in, I think, 1999. Yet we have not achieved it outside of China today. And so there are reasons for this. The competencies at each of the stages are actually quite different. And it’s very easy to say, well, let’s just do X or let’s just do Y. But frankly, what you need to know and be good at to be good at mining is different from what you need to know and be good to be good at the chemical processing step, which is essentially what we do, we’ll be doing in Kalgoorlie, what we do in Malaysia. And then metallization and magnet making bringing a different set of skills fundamentally from what you’ve got in your chemical processing area. So it is absolutely the sort of thing that you can’t just wake up and then say I’m going to be doing this. Need to look for good partners, skilled partners, people with the right sort of technical knowledge and expertise in those areas. What we have done in the U.S. is that we have selected a site where we will be able to accommodate both further downstream activity and recycling activity. If you have a magnet factory, you need to be able to recycle your swap. And it’s unstable, so you can’t be shipping it long distances and those sorts of things. So we see this as a real opportunity, and we are engaging with sort of relevant potential partners, which may be a partnership which goes anywhere from supplier customer partnership through to some sort of a joint venture, and we are actively engaged in that process as we speak. The success of developing an outside China industry is important for all of us. And so sometimes, I think that the desire to set up outside China operators as if they’re sort of competing with each other when in fact, the main game is China, right? That is our competition for the rest of us. Our success is going to be about building this outside China industry. Otherwise, we simply produce material that ends up going into China for finishing and further value adding. So I think that we do need to work together in this area, and we are certainly very focused on engaging with relevant potential partners on further developing downstream activities.

Paul Young: Thanks, Amanda, for that response...

Amanda Lacaze: Sorry, I was just staying I think U.S. [G] truly understands that. It is part of what drives into things like the sort of Inflation Reduction Act. It also sort of feeds into proposed sort of tax credits on materials produced and otherwise. So the U.S. government is very focused on reassuring a number of these areas. And when the U.S. puts its mind doing something, I think they have a very good track record.

Paul Young: Sorry, just part to that around the pricing because I know Pol a while back said that your you’re getting only sort of 50% payability around that number versus sort of if you called a benchmark within China et cetera. How do you think about pricing of those heavies with respect to floor pricing or how you should price those?

Amanda Lacaze: So I think that in terms of -- as we think about the production, which is coming out of the Texas facility, clearly, the DoD will get first call and it will be done at commercial rates. And so therefore, we will capture that additional margin that you’ve just mentioned, Paul. And then our focus is on ensuring, and we are working on this in terms of looking at our feedstock profile as well. If you look at the NdPr maintenance, a high performance NdPr maintenance, you basically need your DYTB at a rate of about 1 to 10 to NdPr. So we need to increase the amount of DYTB that we have. And what we will look to do is to work with our customers to optimize the pricing on that because it will be of great value to our customers to secure not just their NdPr but also the DYTB in the right ratio.

Operator: And our next question will be coming from Al Harvey of JP Morgan.

Al Harvey: Just another one on the CapEx at Kalgoorlie. What was feedback there? Just wanted to understand CapEx guide still $600 million for 2024, but we have had that increase in Kalgoorlie. So just wondering if there’s been a shuffling across the other projects kind of how we think about the $600 million spend across the different projects?

Amanda Lacaze: So I think that if you look at this and guidance as well, but we’re really talking about often when we’re talking about cash, it’s really sort of what we see in terms of cash. And as I said, with some of those capitalized pre-commissioning and commissioning costs, that cash has already been seen through. And so at 30 June in the accounts, we’ve got $600 million cash out. So we -- yes, there is -- I mean, I think that we’ve always a little bit of balancing as it turns out some of what we’re doing in the LAMP. It cost us a bit less than we originally thought that it was going us. Some other projects we haven’t commenced yet. Ultimately, the amount that you’re yet to spend in the year can sometimes also be determined by your ability to actually spend. So if you think about $600 million in a year, that’s an awful lot of dollars every single week. So we are confident that, that is the number that we will be able to spend, both based on the projects and our ability to execute. A bit of reshuffling, but not substantive.

Al Harvey: Just on to LAMP, just note the High Court recently ruled to grant judicial proceedings to progress your licensing appeal. Just want to get a sense of what the next timing milestones might be there that we can look out for?

Amanda Lacaze: Sure. So we launched the two judicial review applications the end of last month and the first hearings in front of judges were in last week. And that’s where we were given leave to appeal. I think Sarah is on the call and she can add to this, but okay -- we had some problems getting Sarah connected. So I’ll just cover this myself then. So the next step is that there will be hearing a substantive matters. And I think perhaps in the 1st week of September, Daniel? And then it will move through from there. I think as we’ve said previously, we’re very confident about our position. We don’t actually have a great appetite to be in the court. This is something that we would much rather be certain to directions hearing on the 3rd of September. So we don’t have a great appetite to be in the courts. We would rather actually deal with this with the regulator and the government on a sensible evidence-based basis. However, we are compelled in this instance to move through this judicial review process, and we are very confident about the ground on which we have made the application.

Al Harvey: And just finally on the Mt Weld capacity expansion. I just wanted to get an update on how the progress of the appetite processing circuits going if you’ve got any update there?

Amanda Lacaze: It may be better for me to get the team to have a conversation separately on that. Yes, we are -- there are -- because there are a couple of different parts associated with it, we’ve got one which is pre-leach, which allows us to improve our recoveries post floating off some of the appetite. And then there’s a second piece, which, as we go through the ore body in -- deeper into the ore body, we have more appetite rich ore, and there’s a second set of activities associated with that. But I think maybe the best thing would be to get somebody to take you through that in a bit more detail because it is quite complex.

Operator: Next question will be coming from Reg Spencer of Canaccord.

Reg Spencer: Thank you very much for all the detail around the CapEx. That’s very helpful. I was wondering if I could ask a question around OpEx, given inflationary pressures that we are seeing position to comment to provide some guidance how we should think about cost of Kalgoorlie? Or that’s something we might have to wait a little bit?

Amanda Lacaze: I’ll go a little bit of interference on that. But we have -- as I did sort of mention this earlier, Reg, that we do have a profile on the operating cost at Kalgoorlie. And it’s a lot less in the first draft, which would not surprise you. As I said, we’re very focused on ensuring that we keep our cost muscle even with the addition of the third site. Having said that, this year, when we are going to be running three plants and not yet able to confident they put in the additional downstream, there will be some cost penalties associated with that. We’re not going to be able to form a final view on that until we’ve actually got this plant up and running. It is much larger. We’ve got headroom. All of these things sort of help to improve the efficiency of the material moving through the plant. On the other hand, we have some quite significant land-side logistics penalties associated with some of the imported reagents like MGO and those sorts of things. And so the team is currently working on what are better solutions than handling the same material three different times before it actually gets to the plant. And that should allow us to be able to get some further cost optimization in that area. But I don’t think that we can give you good guidance on this until we’ve actually got the plant up and running and we see how and we start that optimization process on the costs.

Reg Spencer: Understood. Another question would be around I know it’s difficult for you to give us a time line on when we might expect an outcome of the judicial review. But if I could put something to best-case scenario here, if the review was found in your favor and you were able to continue to crack and leach indefinitely in Malaysia, you would then have 17,000 or 18,000 tonnes per annum of cracking and leaching capacity. Under a best case scenario, how might we think about that review turned into your favor Or is it despite too early for you to speculate there?

Amanda Lacaze: Under a best case scenario, yes, we have approval to continue to operate in Malaysia. Under a best case scenario, we then would make commitments and decisions related to upsizing the downstream capability. And I think at the last quarterly call, Pol, actually talked about, we had an opportunity to consider how to revamp our ASICs and in particular, but also invest in further product finishing capability in Malaysia, which would allow us to get an uplift in capacity there, which is why we are confident about making a step to the 9,000 tonnes at Kalgoorlie because we will be able to uplift the downstream capacity at the most appropriate time. The other thing to note is that there are No, we’re not sort of concerned that we will add additional capacity if we’re not able to process it ourselves. And of course, finally, the Mixed Rare Earth Carbonate feedstock will be going through to the U.S. facility. So yes, it will be a very big celebration if we had both the facilities operating. And -- but if not, we have a variety of different pathways to ensure that we optimize the capacity, which is valuable to us.

Reg Spencer: You kind of answered my question there, Amanda where would you locate further separation finishing capacity because that would appear to be the bottleneck relative to your cracking and leaching capacity? So you’re suggesting that if it went all your way, that would likely be placed subject to FYD and studies and so on and so forth in Malaysia and not some of us.

Amanda Lacaze: It could be in Malaysia. The facility in Kalgoorlie certainly has all of the utilities and scope to be able to increase selectively the amount of the type of activities that we undertake there. It is not something on which we’ve spent a huge amount of time as we race to meet our current deadline. Once we’ve got this plan up and running, we will review that we will compare all of the relevant locations. And then we are building a factory in Texas, which will do soil extraction and product finishing both the heavies and lights. So we do have options, and I think right back bridge to what I was saying at the beginning of slightly jigsaw puzzle. And sometimes, we’re sort of moving the pieces around and maybe stepping up for there to make sure that they fit. But we are confident that we have all of the right elements and just as each of these different things fall into place, most importantly, the Malaysian license, we will make decisions on the subsequent investment profile.

Operator: Our next question will come from Regan Burrows of Bell Potter.

Regan Burrows: Just a couple of questions from me. I might just start with a broad one just in terms of production and sales. And I think on the quarterly call, you sort of guided to roughly 10% to 15% of inventory stockpiling over the next couple of quarters. Just thinking whether you’re sort of -- whether your thought on this has changed? And I guess for the full FY ‘24, are we sort of interpret, I guess, production sort of down and sales sort of up a little bit with that inventory volumes? I guess just how should we sort of look at it?

Amanda Lacaze: The first 6 months in this year has its fair share challenges we potentially transition across from the year 2 to the Kalgoorlie facility being the [indiscernible] truck for Malaysia. I think everybody knows that there is clearly risk as we start up the facility and the speed at which that ramp-up will occur. We believe that the level of experience that we have in operating in cracking and leaching facility will stand at some good stead. But nonetheless, it is a large and complex plant. And I think everyone would know that it would be imprudent of us not to be planning for, as we’ve described previously, various scenarios. You know sort of the best possible and at the other limit sort of a slow ramp up. And we have the tools to allow us to make assessments on that. So the inventory build, particularly in the 6 months, is to ensure that we do two things. We don’t unnecessarily sell into a weak market, but b, we also carry inventory just in case there are unforeseen delays as we ramp up the facility. So there is in -- across this financial year, clearly, as we make the transition, as we just -- just said, if we get things resolved appropriately in Malaysia, then we’ve got upside. If we don’t, then -- yes, it’s likely to be that we will have some pressures in the production, which is why we think that it’s prudent to be.

Regan Burrows: All right. And just potentially and I guess it from a different angle, but the capital expenditure at that Kalgoorlie, I remember speaking to there where some sort of tax, I guess, shields that could have been applied to that under the COVID-19 sort of rules. Just sort of curious whether you’re able to sort of capitalize on any of those?

Amanda Lacaze: Gaudenz, do you want to take that question?

Gaudenz Sturzenegger: Am online? Yes. Okay. Good. So I think that’s actually specific to tax and tax consideration. I think there was kind of this set up in place for Australia kind of COVID related that you could take an advantage on kind of on the -- meant to recognize the tax depreciation of the assets kind of if you could -- if they were put in place before the end of June. And I think we have a couple of assets, obviously, which qualify. I think it’s a little bit different between accounting approach and tax approach. So we are working that through. And we will know -- we need to finalize this before we obviously hand in our tax declaration before the end of this calendar year. But I think, here, it’s not a P&L impact. It’s really more a cash impact on when you okay the taxes. So if you can kind of pull forward the tax shield at this point in time or if you spread it over the life of the assets. So that’s the only impact. It’s purely a timing impact.

Regan Burrows: All right potentially just one more if I could squeeze in. Just in terms of the 9,000 tonne capacity increase, just confirming that’s 9,000 tonnes of separated NdPr. So I guess, from an MREC products perspective, we should think of that as roughly 15,000 tonnes capacity?

Amanda Lacaze: We can confirm that at some other stage, Regan. But yes, we think about the capacity in terms of finished product. So we see would like to be...

Operator: And our next question will be coming from Daniel Morgan of Barrenjoey.

Daniel Morgan: In the releases, you talked about scope of 9,000 tonnes per annum of NdPr Kalgoorlie. But this compares to back in 2019 when you announced Lynas 2025 that you were targeting 10,500 tonnes per annum of NdPr. Is the gap between them -- is that proposed to be the U.S. plant? Is there going to be a cracking and leaching circuit there? Or what is the difference between those numbers?

Amanda Lacaze: Sorry, the 9,000 tonnes is what we will now be able to crack it at Kalgoorlie. So it is high -- sorry. Where are we...

Daniel Morgan: I was just referring to – apologies. In 2019, Lynas 2025, I think you announced that you would build system capacity of 10,500 tonnes per annum of NdPr.

Amanda Lacaze: Yes. And all the way back then, there was no -- at that stage, we did not face any constraints on continuing to operate cracking in Malaysia. So the first change to the license in Malaysia which us not -- which was in the foreshadow in August 2019, and that latest 2025 was, I think, May 2019. But the license didn’t actually change until March 2020. So right back when we said that 10,500 tonnes, we’re working on a different set of assumptions in terms of what we had. And in fact, all the way back then, I think we were thinking about sort of nameplate capacity at Kalgoorlie in the first instance of maybe about 3,500 tonnes, 4,000 tonnes. So then we got the change to the license, and that’s when Grant and the team had to go back and really rethink what will be doing at Kalgoorlie, how are we sizing it and how are we going to be able to ensure that it met our requirements in the medium and long term. And that’s when we then changed sort of the first goal there was to at a minimum we have to replace Malaysia, bearing in mind that by now, we were on a 2.5-year sort of ticking time line. But as we’ve moved through and as indicated in previous disclosures, we made the additional investments to give us confidence in being able to get this 9,000 tones. And you’re right the number you have highlighted that, that’s still not at the 10,500 tonnes and we’ll have the 12,000 tonnes that we’re actually putting in place in Mt Weld. But we still have some way to go in terms of our discussions in Malaysia. Cracking will not be a bottleneck if we can get this result appropriately in Malaysia. But I mean, there’s been a number of things have moved through this sort of 4-year period. And what we’ve been trying to do is to ensure that as we make our investments, we give ourselves optionality so that still by 2025, we have at least 10,500 tonnes and hopefully, 12,000 tonnes of NdPr capacity.

Operator: And our last question will come from Paul Young of Goldman Sachs.

Paul Young: Just a few follow-ups on the U.S. refinery, please. Firstly, just on the Heavy Rare Earths refinery. When do you expect to award EPCM contracts and actually start construction?

Amanda Lacaze: So we have already identified an EPCM partner with whom we’ve been working for some time. In fact, in the next -- the Kuantan on at least by and other, again, in the next couple of weeks for a 2-week period because we have a number of our Malaysian engineers who will also engage in -- on this project. And so that’s the sort of -- the first point, yes, we’ve identified an EPCM partner and also a construction firm. The second piece is that we have started with the need for approval process, and that’s going to determine when we’re able to commence construction.

Paul Young: Okay. And then just a second one on the Light Rare Earths refinery, what is the latest -- what is the last capital estimate? Is it 5,000? And are you -- do you expect to update that estimate?

Amanda Lacaze: We are finalizing. It is interesting with always when you deal with -- dealing with government. So there is one contracting body for the heavies and the second contracting body for the lights. We are finalizing contract discussions with the entities that is the contracting entity for the lights, and we would expect to be updating what we will say that once those negotiations are complete.

Paul Young: Okay. And that would be in FY ‘24?

Amanda Lacaze: Yes.

Operator: And I would now like to hand the conference back to Amanda for closing remarks.

Amanda Lacaze: So once again, thank you all. It’s -- as I said, we live in interesting times and we at Lynas are very pleased that we’ve been able to meet many of our challenges. And I look forward to being able to take you all on either an in-person or a virtual tour of our fabulous new facility at Kalgoorlie because it really is very impressive. We face the future with enthusiasm and optimism, but those of you who know me would know that I face everything with enthusiasm and optimism. But I think that we remain in the best place to really be matched it to take full advantage of the growth in this market. So thanks, and I look forward to seeing many of you over the next few days.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.