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Earnings call: Lynas Rare Earths reports robust production, CapEx increase

EditorAhmed Abdulazez Abdulkadir
Published 24-04-2024, 06:44 pm
© Reuters.
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Lynas Rare Earths Ltd. (LYC) CEO Amanda Lacaze led the company's investor briefing for the quarter ending March 31, 2024, with a focus on production achievements, capital expenditure adjustments, and project developments. The company reported surpassing production expectations with 1,724 tonnes of rare earths and provided updates on the Mount Weld expansion and the Kalgoorlie plant. Despite challenging market conditions, Lynas is maintaining inventory levels in anticipation of price improvements and is strategically managing its capacity and cost-efficiency across its operations.

Key Takeaways

  • Lynas Rare Earths achieved a production of 1,724 tonnes, exceeding expectations.
  • The Mount Weld expansion project is on track, with the dewatering circuit expected to be completed by year-end.
  • Lynas received NEPA approval in the U.S. and will begin earthworks by the end of the year.
  • A five-year mining contract with Carey Group at Mount Weld was announced.
  • The company plans to hold inventory, waiting for price improvements.
  • CapEx for the Kalgoorlie plant has increased to $800 million due to construction challenges and contract arrangements.
  • Lynas expects to deliver around 750 tonnes per month in the current quarter.
  • The company is managing excess capacity and cost efficiency, potentially running the Kalgoorlie plant at half capacity.
  • CEO Amanda Lacaze emphasized the importance of being prepared for market recovery and managing price risk effectively.

Company Outlook

  • Lynas is optimistic about addressing the expected issues during the Kalgoorlie plant's ramp-up phase.
  • Production numbers for the current quarter are anticipated to mirror the previous quarter's performance.
  • The Mount Weld expansion project remains on schedule, with Stage 1 concluding this year and Stage 2 the following year.
  • The company aims for a capacity target of 12,000 tonnes per annum by the end of the calendar year 2025.

Bearish Highlights

  • CapEx for the Kalgoorlie plant has risen due to extended commissioning time frames and other factors like electric backup capacity and contract finalization.
  • The challenging market conditions have prompted Lynas to hold inventory, indicating current prices are not favorable.

Bullish Highlights

  • Lynas has a strategic approach to managing price risk with various pricing arrangements such as fixed price, market-based, and floor-ceiling contracts.
  • The company is one of only two firms that can sustainably produce NdPr outside of China at current prices.

Misses

  • The increase in CapEx for the Kalgoorlie plant reflects construction challenges and contract complexities.
  • There is excess capacity in the cracking step of processing, which the company is assessing on how to manage cost-effectively.

Q&A Highlights

  • Discussions on contracts and pricing are ongoing, with an emphasis on balancing the portfolio to manage price risk.
  • The U.S. election is not expected to have a significant impact on the rare earths supply chain.
  • Costs at Kalgoorlie will continue to be capitalized until Mount Weld is fully operational.
  • Lynas is open to third-party feedstock; however, none is currently available.

Lynas Rare Earths continues to navigate the complexities of the rare earths market with a focus on production efficiency, cost management, and strategic planning for future market conditions. The company's leadership remains confident in its project timelines and its ability to adapt to market dynamics. Investors and stakeholders are encouraged to direct any follow-up questions to the Lynas team.

InvestingPro Insights

Lynas Rare Earths Ltd. (LYC) has been navigating through a challenging market landscape, but certain financial metrics and analyst insights provide a deeper understanding of the company's position. As of the last twelve months leading up to Q2 2024, Lynas held a market capitalization of 3.89 billion USD. Despite the reported sales decline, the company's strategy of holding inventory in anticipation of price improvements could be seen as a move to leverage its strong balance sheet, where cash reserves surpass debt (InvestingPro Tip).

The InvestingPro Data indicates a P/E ratio of 29.63 and a slightly higher adjusted P/E ratio for the same period at 29.78, suggesting a valuation that investors might consider when weighing the company's earnings relative to its share price. Moreover, the company's gross profit margin stands at 38.11%, reflecting its ability to maintain profitability in the production of rare earths.

It's worth noting that analysts predict Lynas will be profitable this year (InvestingPro Tip), which aligns with the company's own optimistic outlook and strategic planning for future market conditions. Additionally, the InvestingPro product offers 10 more tips for Lynas Rare Earths, providing investors with a comprehensive analysis to make informed decisions. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription for even more insights.

Full transcript - Lynas Corporation (LYSCF) Q3 2024:

Operator: Good day and thank you for standing by. Welcome to Lynas Quarterly Results Briefing. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lynas Rare Earths. Thank you. Please go ahead.

Lauren Stutchbury: Good morning, and welcome to the Lynas Rare Earths' Investor Briefing for the quarter ending 31 March 2024. Today the briefing will be presented by Amanda Lacaze, CEO and Managing Director; and joining Amanda is Gaudenz Sturzenegger, CFO; Pol Le Roux, COO; Daniel Havas, VP, Strategy and Investor Relations; and Sarah Leonard, General Counsel and Company Secretary. I'll now hand over to Amanda. Thanks, Amanda.

Amanda Lacaze: Thanks very much, Lauren. Good morning, everybody. Now I'm told by the people who manage this conference, there are already five questions in the queue. So I will probably keep my remarks very brief, therefore, so that we have plenty of time to deal with those questions. As always, I am certain and that's the reason why you've got lots of questions. You've already read the report, so I don't intend to pick over it in detail, but simply to pick out a few highlights. As the absolute highlight of the quarter was the production outcomes. As we had disclosed in a half yearly, we had a very successful shot for the last six months of last year. And indeed at last, we have put in a major new facility for the receipt and processing of MREC from our Kalgoorlie facility. And this is being done, really with very smoothly, minimum of fast, and most importantly safely. So not only was the shot managed well, but the ramp up from the shot has been really quite outstanding. We thought that we were going to do better than what we had guided on late last year and indeed, we've done better again at 1,724 tonnes. We think we will sustain that or in that sort of vicinity for this quarter. We won't be bringing in a lot of the new capacity that we put on that that that we've now got available to us in Malaysia until we see some further improvement in the market. So a very successful production ramp up and a great deal of and we are confident in using our time to test and make sure that the new circuits work. Of course, another highlight is the Mount Weld expansion. It remains on track. Stage 1, which some of you will recall really focuses on our dewatering circuit, which is the current bottleneck at Mount Weld is very well advanced and we expect to start energizing energization and commissioning over the next few months. We certainly expect that we will have a step up in Mount Weld's capacity by the end of this calendar year and that will be followed by the further step up which will come with the completion of Phase 2 next calendar year. Progress in the U.S. remains very positive as well. U.S. government as I think nobody would be surprised is very focused on ensuring that this project moves forward and moves forward as quickly as possible. We've received the NEPA, National Environmental Protection Authority approval during the period. Interestingly, the DOD was the proponent on that, and so it really helped us to ensure that you know, I know one of the things that people ask is what's it like going into a new jurisdiction. And when you're partnering with people who are expert in that jurisdiction, you certainly are able to avoid any of the tracks for new beginners. So we've continued with the engineering design review. We've had our engineering teams working together in Malaysia on a number of occasions, and we see ourselves commencing with Earthworks by the end of this calendar year. Another highlight was the appointment of the Carey Group for a five year mining contract for our mining services at Mount Weld. Carey is an excellent and proven contractor in this space, 30 years of experience and at mines which are close to our Mount Weld mine. It's also really very positive. Daniel Tucker is the Principal of Carey Mining is from the area, so it's his country. And he has many family connections in that area. We're really pleased that we're able to have an excellent mining contractor who also brings the First Nations experience and knowledge of the country in which we're operating. So what were the lowlights? Well, the market continues to be less than kind to us and to anybody else in rare earth, of course. Pol and Daniel and I have just spent a couple of days in Rare Earth Conference in Singapore. There's a general view in that conference that the slight improvement in price will probably continue to firm, but not at a significantly accelerated rate. Certainly, as you listen to all of the various industry commentators, their assessments are wide ranging, but there's a general consensus that the current price is below cost for many Chinese producers and that there's also a general consensus that the Chinese economy is starting to pick up momentum again. So with these various sort of influences as everyone would have seen, we made a decision to hold some of the inventory rather than having it sitting as sort of in other people's warehouses, appreciating as the price goes up, we thought it would be best if it sits at our warehouse and appreciates as the price goes up. Then the other one, which we have disclosed in here is that as we're approaching sort of final activities, construction activities in Kalgoorlie, as we're finalizing various different contract arrangements and sort of claims backwards and forwards. We think that we're going to end up more in the range of about $800 million in CapEx, rather than the previously disclosed $730 million. We see this, Kalgoorlie casually is not surprising us in terms of some of the challenges that you face as you're in your early commissioning and ramp up phase. We have skilled and capable people on-site and look forward to it really now starting to accelerate as we complete a number of matters. The issue with power, certainly, I think once again when we did the half year, we disclosed the effect of the January power outage in Kalgoorlie. And the downside to that was that, we didn't have any power at all for two weeks. The upside is it gave us some good learnings around the way that the plant would respond to an interruption of power, and we have been able to enhance some of our processes and some of our equipment to deal with that. So we continue to work on Kalgoorlie, and right now as everybody knows, we have excess capacity theoretically in C&L and we can certainly consume all of the feedstock available from Mount Weld at present. And as we move into the next stages, we commission Stage 1 at Mount Weld. We will like to have Kalgoorlie actually ramping up in parallel with that increase in feedstock coming out of Mount Weld. So as I said, I'm sure you've all read it, and I'm happy to take your questions. The big highlight is production and coming out of our shutdown very well, And we look forward to probably a somewhat better run through to the end of the financial year. Happy to take questions now.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. One moment for the first question. Our first question comes from the line of Chen Jiang from Bank of America (NYSE:BAC). Please go ahead.

Chen Jiang: Good morning, Amanda. Thank you for taking my questions. Good morning, Amanda. Thanks for taking my questions. And two questions from me, please. So firstly at Mount Weld CapEx increased by AUD 70 million. I guess given Kalgoorlie is yet to achieve commercial production, I'm wondering if this increase is final or Lynas will continue to capitalize the cost during the ramp up, how should we think about the total CapEx for FY '24 and FY '25? Thank you, Amanda. I have another one after this.

Amanda Lacaze: Okay. Thanks, Chen. We have tried to indicate this. We are managing our CapEx within the CapEx envelope that we had previously indicated, which is about $600 million for this year. And we will manage our various projects. And of course, within that $600 million, we even had what we would call opportunity projects, which we now will not complete within this period of time. So we think that the CapEx is manageable. And in terms of when do we start -- when do we stop capitalizing the operating costs? Well, there's complex accounting rules that tell us when we can do that. And once we tick the box on those rules, then we'll make that change.

Chen Jiang: Sure. Thanks, Amanda. Another one is on Kalgoorlie. Now Kalgoorlie has started to take rare earth concentrate from Mount Weld. And then in the release, Lynas mentioned additional work and activities required. I'm just wondering the challenges or issues faced by Kalgoorlie. Is that what Lynas expected or those are new technology or engineering issues? Thanks. If you can provide any color on that, Amanda. Thank you.

Amanda Lacaze: Thanks, Chen. Look, I think that we are -- to your question is, is it as you expected? We are as I think everybody knows an unfailingly positive and optimistic firm. That's part of our culture. You know, we believe somebody said to me one day that we believe we can do anything. And this particular person, I think was a grumpy old man because he sort of saw that as a negative, and we see it as positive. So is it going as well as we would have liked it to have gone? No. Is it presenting issues that would not be expected as you ramp up a plant of this size and complexity? No. So, we would always like things to go faster, when we were but we're not surprised by some of the challenges. But as you said, when you talk about sort of as we put the concentrate into the plant, yes, you find things that you would have rather not found like the dose rates end up you get some blockages. You got to actually deal with that. None of it is remarkable, but all of it takes time to address.

Chen Jiang: Right. Right. Thanks for that. Good to hear that, it's not surprised by Lynas. Thanks. So last question is Lynas still on track to deliver, I remember previously mentioned, 750 tonnes per month of NDPI equivalent in the current quarter in the June quarter? Thank you. That's my last question.

Amanda Lacaze: Yes, that's fine, Chen. I tried to indicate that we can deliver the 750 tonnes in terms of the circuits in Malaysia, working as designed. Given that we've already made a decision to hold some inventory from sort of the previous quarter, we won't be accelerating that production at this stage, and we would expect that this quarter is going to be around about the same sort of production numbers as the quarter we're just reporting on.

Chen Jiang: Great. That's very good color. I appreciate that. Thank you, Amanda. I'll pass it on.

Amanda Lacaze: Thanks, Chen.

Operator: Thank you for the questions. Next question comes from Austin Yun from Macquarie. Please go ahead.

Austin Yun: Good morning, Amanda and the team. Two questions from me. The first one is just on the CapEx. You confirm that the CapEx remains unchanged for '24. So given it's $70 million increase on Kalgoorlie. I'm just curious to understand what projects have been kind of being pushed out to the next financial year compared to the second one. Thank you.

Amanda Lacaze: So with respect to that, I mean even with $70 million for Kal, it was not all full due in this quarter. So that's part of it. It's sort of a cash flow effect on that. What we're estimating is sort of our final cost of this, and all of that cash won't go out this quarter. We've for a variety of reasons, we've just delayed a little on a couple of our other major projects because we want to ensure, we've sort of reviewed everything that we're doing, and we want to ensure that we keep sufficient powder dry to also implement some new cost efficiency initiatives that Pol and his team have identified. And so we're just adjusting the capital plan at present. You guys see the big projects, which is the Mount Weld expansion, Kal and the LAMP Industrial Plan. But of course, we have normal sort of operating CapEx in quotation marks, but sort of CapEx programs that are part of our normal operating rhythm. And some of those, we'll be looking to adjust as we move forward.

Austin Yun: Right. Thank you, Amanda. The second one is on the Kalgoorlie plant itself. Like clearly, you have a good level of learnings during this extended commissioning phase. And you also commented just now that the NdPr production is going to be flat or the acceleration of the growth will be kind of a slowdown a little bit. I mean, just keen to understand for the Kalgoorlie plant, is it possible to run at a half capacity? Or would you be running kind of a campaign phases, given I understand that the large capacity of the pumps? So any color you can provide on that will be appreciated. Thank you.

Amanda Lacaze: It's a very good question, Austin, and it's one that we are studying at present, because even once we have the Stage 1 upgrade at Mount Weld come online, we will still have excess capacity in the cracking step of our processing. And so managing that, and particularly within a sort of a tighter price environment, managing that to give us the best possible cost profile is critical. And so our team is assessing a variety of scenarios, But implicit in your question, which is right is that large chemical plants typically don't like to be run at half speed. So is there an opportunity to run on a campaign basis? There are other ways, and it's really assessing both Kalgoorlie and Kuantan facility and making sure that we've got production strategies in both locations which are complementary. So I can't tell you the answer to that right now because the first, of course the first thing is to get the plant up and running, But we are working on what does it look like once we have confidently got the plant up and running.

Austin Yun: Thank you, Amanda. Just a really quick follow-up. In terms of the concentrate you fit into Kalgoorlie, how much flexibility you have to take different oil types with different mineral assemblage?

Amanda Lacaze: So particularly if we have, if we run on a campaign basis, taking concentrate from alternate sources is relatively easy with the exception of some mineralogies. But generally speaking for many of the junior projects proposed, sort of material, we would see that there's good opportunity in that area. So what we find in a lot of instances is that it's less about the rare earth assemblage and more about sort of the presence of thorium and uranium elements in many of the other deposits. So we engage with all of these sort of developing projects. We think that there is good opportunity for us to work in a way that is good for the whole of the Australian rare earth industry, but we don't have anything else to put into the plant just right now, Austin.

Austin Yun: Thank you, Amanda.

Operator: Thank you for the questions. Next question is from the line of Daniel Morgan from Barrenjoey. Please go ahead.

Daniel Morgan: Hi, Amanda and team. Just the comments about your plans to ramp up Kalgoorlie and your business from here, which if I correctly read is you're going to be looking to produce less than what your full capacity could be in the first or from maybe the next few months. Is that, 100% a market decision, or is the niggles in the Kalgoorlie ramp up or design floors or anything that you've identified that need rectifications? Thank you.

Amanda Lacaze: Thanks, Daniel. No. It's that we have now that we are operating two cracking plants, we have more capacity in cracking than we do in any other stage of the process. So once we finish the Mount Weld expansion, we'll have the equivalent of 12,000 tonnes of feedstock in Kalgoorlie with the combination of Kalgoorlie and Malaysian cracking, we've actually got sort of at least 15,000 tonnes of cracking capacity. So we just have to make a decision on how to manage that, most cost effectively that additional capacity. We don't -- it doesn't trouble us that we have more, that this is the case because whenever you're running a process as we do with sort of five different stages, the bottleneck moves around. And we talked about this quite a bit, I think a couple of years ago that C&L was going to potentially be the bottleneck if we didn't resolve matters in Malaysia. Given that we've resolved that and we took actions accordingly, now that we've resolved quite a lot of those matters in Malaysia, C&L is indeed not the bottleneck, and the bottleneck has moved back to Mount Weld. We've already released some of the downstream bottleneck with the work that we did at the end of last year. So it's just a case of managing capacity as the bottleneck moves around the process.

Daniel Morgan: Okay. Thank you. And Mount Weld, when do you expect that to be ready to ramp up? One could interpret that the lift in CapEx of $70 million to Kalgoorlie, but no change to FY '24 guidance implies there was less spend elsewhere and perhaps Mount Weld perhaps that's a few months behind. One could interpret that as. Could you just tell us?

Amanda Lacaze: One could, but one would be wrong. No. Mount Weld is I think look at the third paragraph. The Mount Weld expansion project schedule remains on track, right. So clearly, as we make decisions given that this is the bottleneck, this is where the bottleneck has moved is concentrate production, that we're not slowing that down because we will need more feed and we talked a bit about this when I did the half yearly. The one thing you've got to be certain about in the rare earth market is that you are ready to go when the market picks up as it surely will. So we have to be able to be successful when the price is low, and we can because we are a low cost producer. And then we have to be ready to take full advantage of market conditions when market conditions improve. I think though that it's really important to note that as we're looking at these various projects that we're doing and even the very good performance that we've had in terms of production in the past quarter. A lot of that is actually driven by the team, continuously improving and continuously focusing particularly on recoveries, that's going to deliver us cost benefits over time and our recovery program looks at recoveries all the way from the mine to big bag, but it certainly is operating at every single site. So no, I don't think that you can assume that the Mount Weld expansion is not on track because as we said, it is.

Daniel Morgan: Okay. Thank you. And the discretionary decision to ramp up the business in response to market conditions, what are you looking to see there? Like, is it an elevated or an increase in levels of inquiry to your marketing department? Is will we be able to view it as a price threshold that you'll be looking for? How do you think about that?

Amanda Lacaze: I think that my level of resource is really precious, and I want to make sure that when we sell it, we're selling it for the best possible price. So certainly, price is an input to that. At present, we are engaged in a number of discussions with a number of parties with respect to sort of ongoing contracts when we didn't have the confidence in the additional production or indeed, it's still relatively fresh that we've got issues in Malaysia resolved. We could not add substantially new contracts to our portfolio, But Pol remain very progressed in a variety of those discussions, so both inputs will be relevant. But yes, particularly price, we don't have an appetite. You won't be surprised to know that end use customers are on the phone all the time when the price is low to say, well, let's agree a fixed price. And you also won't be surprised to know that we're not all that enthusiastic about fixing a price when the price is low. So the negotiations are ongoing.

Daniel Morgan: What is your mindset when you -- what are you seeking to do with your contract book? Like, what does the ideal contract book look like from here?

Amanda Lacaze: I don't think there is a single ideal contract. I think the trick in any business, I mean without getting too theoretical, it's about risk management. So having a pricing portfolio which allows you to manage risk, price risk is very attractive and so that means having a variety of different price formulas. However there are limited opportunities, not with anyone, anyone might like to tell you to sell NdPr without it ultimately having some sort of reference to the market price. It's processed into a metal and a magnet, and so therefore our opportunities to introduce differentiation around with chemical or physical form are somewhat limited. And so, unlike the work that we're doing at all of our R&D is really focused into the use of things like our Cerium and to electric magnet and Catalyst in the new energy fuels. In those areas, we have an opportunity to really differentiate the product both chemically and physically. We've now registered a number of patents in that area that we believe will give us real value over time. But with the rent, it's really making sure that we balance our portfolio with NdPr that we balance our portfolio. And we have some which are at fixed price, some which follow and some which follow the market and as I said previously, some which are floor ceiling. And that's the way that I think we manage price risk best in our business.

Daniel Morgan: Okay. Thank you very much for your perspectives, Amanda.

Amanda Lacaze: Thanks, Daniel.

Operator: Thank you for the questions. Our next question comes from Al Harvey from JPMorgan (NYSE:JPM). Please go ahead.

Al Harvey: Good morning, Amanda and team. You've mentioned in your opening remarks that you've gone from feedback around pricing. You're expecting to see a bit of a recovery, and you also mentioned that a lot of China players are underwater below cost support here. I just wanted to clarify, if it's your impression that that's across all players including smaller and higher cost producers and whether or not the larger players are kind of sitting below cost support level here?

Amanda Lacaze: I think that we have a fairly confident view that there are only two firms which can be sustainably producing NdPr outside profitably at this sort of price, and that's Northern Rare Earths, which still is it's got we would say a slightly lower cost base than ours, and some of that's driven by simply by volume, and Lynas. And that's everybody else's either marginal or loss making at these prices.

Al Harvey: Sure. Thanks. Thanks, Amanda. Just when in terms of your comments around the excess cracking and leaching capacity you've got now, I guess still trying to understand how we think about utilization of this and how you weigh it up against potential upstream development in Malaysia, just knowing the clays typically don't need cracking and leaching, so it doesn't really resolve that overcapacity.

Amanda Lacaze: Yes, that's right. If we have mixed rare earth, if material which will come out of the ionic clay developments in Malaysia will be a mixed rare earth carbonate, which is yes, another reason why we've made this significant investment in the front facility to receive mixed rare earth carbonate in Malaysia. We have opportunities to further increase well production over time. But as said earlier by Austin, I mean it is our -- we would like to think that other projects are able to come to market with concentrate and that we are able to provide a non-Chinese outlet for the processing of that concentrate. Present a number of firms have reviewed their investment models and a number of them are talking about production of concentrate, which will inevitably be sold into the Chinese market. And without being too jingoistic, I applaud the Made in Australia policy, and wouldn't it be good if we could process it, domestically?

Al Harvey: Yes, makes sense. Maybe just finally, starting with the U.S. project, are we likely to get a study before ground is potentially broken at the end of the year?

Amanda Lacaze: A study?

Al Harvey: Yes.

Amanda Lacaze: Well, we're doing our studies and our planning. We weren't planning to specifically release a study. No. We are working closely with our partner, and we operate with that partner on the basis of certain agreements with respect to what we do when and with what level of confidentiality.

Al Harvey: Thanks, Amanda. Maybe just if I could just squeeze one last one in. I'd just note the revenue numbers presented on a gross basis this quarter. So last Q, looks like that was $112 million net on a gross basis. It was $136 million. I'm just wondering, what the change in the presentation is there. And is there a like-for-like number that we can use to kind of compare on a net basis?

Amanda Lacaze: Well, look we just show that it's just a better number, because the price is quite volatile at present, And so it's difficult for us to finalize. I mean, as you would know, we sell material that [indiscernible] in Japan, which is then sold through to the end user customers where sort of final pricing is resolved. And so, that's the reason why we've presented it in this way because whilst we account for it on Gaudenz can jump in if I've got this wrong, but I believe we track it on a weekly basis and account for it pretty much on a monthly basis. It's bouncing around a lot, so we felt this was a better way to do it. Gaudenz, did you want to add anything to that?

Gaudenz Sturzenegger: Yes, I confirm your point. I think the messaging is clearer. It really shows how the market goes if we present it at the gross level and taking out the interference of the final settlements, which are really jumping around very much. So it doesn't give you the right picture how the market goes. And we do obviously recognize it on a monthly basis. But particularly with April having kind of a positive price trend, it changes the data all over again. So I think the gross one gives a better picture than the net, which will be in the half yearly and the yearly data, obviously.

Amanda Lacaze: Yes, so probably then certainly, we've given you five quarters of like-for-like gross revenue there, which I think should be sufficient to give you a good direction.

Al Harvey: No worries. Thanks, Amanda and Gaudenz.

Amanda Lacaze: Thank you.

Operator: Thank you for the questions. Our next question comes from Paul Young of Goldman Sachs (NYSE:GS). Please go ahead.

Paul Young: Yes. Good morning, Amanda and team. Amanda, really interesting comments you make about pricing and the market, and I think it's very prudent you're holding back supply. I obviously agree with that. Just on the market backdrop, I mean, if you look at Chinese magnet demand at the moment, it's really, really strong from EVs, winds, air conditioners and base electronics. But we know supply is strong in China as well. So what do you need to see? What do we need to see, sorry, for the price to increase? Do you think it's actually Western world based electronics demand to improve? Or is it actually Chinese supply to start moderating like a rare earth oxide supply?

Amanda Lacaze: I'm ask Pol to speak to this as well, but I think that it is and we mentioned this, I think last quarterly that it appears that the Chinese government got out in front of its skis last year with the quotas. So if you will recall, there were three quotas last year. And definitely, those quotas resulted in there being surplus material in the Chinese market. I think that what we're seeing now is that we're seeing some tightening of that. And as that continues, we will expect to see some continued firming of the price. But I do think that in this instance, we are seeing some supply side dynamics here and indeed our decision to hold inventory is to ensure that it's partly also to ensure that we don't put further pressure in terms of that supply side dynamic. But Pol, if you wanted to address that any further, I'm happy to hand over to you, please.

Pol Le Roux: Well, it's true that the situation results from the excessive amount of production quotas released last year, especially the additional and very unusual third lot of quotas released, remember end of November or December. Now we see some recovery on the demand side in China. EVs are doing pretty well, correct? The one sector that remains quite depressed in China is real estate and therefore air conditioning, elevators, et cetera. So that's still a segment of the economy that impacts negatively the demand. But definitely we see a slight recovery of demand, which is very good for everyone.

Paul Young: Okay. That's useful. Thanks, Pol. And then Amanda, onto Mount Weld, I find yes, the comments around the staging of Mount Weld in a way really interesting and particularly around the new thickener and concentrate filter. When that's online, you can push the plant harder. And I know you've got you did have a permitting throughput of 240,000 tonne a year of ore, and you're building out the utilities. But once the concentrate thickener and the new filter are actually commissioned, can you actually push the mill harder so we can actually see a step up in Mount Weld production to a level above current rates before the additional the new mill and the new flow plant are constructed and commissioned?

Amanda Lacaze: Yes. Yes, Paul. We can. So even though we have our baby mill at present, it's sort of smaller than some things that, that there's some pilot plants. We can get a little more out of that mill. Yes, so the dewatering circuit is the bottleneck today when we have this beautiful big filter building that you can see in the aerial photo of the Mount Weld expansion. When that comes online, we will be able to press production at Mount Weld. And that will be you might not be surprised to know that will be more sympathetic to the 750 tonnes a month that we will then be able to produce in our downstream assets in Malaysia.

Paul Young: Yes, that's great. And sizing, it's also sensible. So you're not going to tell me though what potentially the mill can do, with the new filter plan and the and the thickener aid?

Amanda Lacaze: No. No.

Paul Young: I'm just making that conclusion already. Last question for me, and that's just on the U.S. refinery. I mean, ongoing commentary about doing stuff in U.S. refinery, but not much happening on the ground. And I get a lot, as far as studies and engineering concern. But can I just ask you this? Would it make more sense to expand an existing U.S. refinery rather than building a greenfields?

Amanda Lacaze: That's a fairly complex question. I think that anytime that you're working on, Brownfields development, that there's a lot of, that it costs you less than if you're doing greenfields. I mean, gee, that's not a huge insight that I've provided, is it? You could all come up with that. But so I think that that certainly makes Brownfields developments very attractive. On the other hand, particularly with this refinery, we are doing this in conjunction with sort of a quite powerful ally, whose view is that this is the way that they would like this configured at this stage. So it is quite complex. We have made a decision that we should proceed with this. And bear in mind that our shareholders are not bearing a lot of the risk other than the risk that we've got, sort of our skills and competent people working on this, but certainly not built with -- wearing the financial risk.

Paul Young: Okay. Thanks, Amanda. We're just on observation, the chemistry sets seem very, very similar and complementary between LAMP and the other U.S. refinery.

Amanda Lacaze: Well, in some ways. In some ways. But yes. Yes, I understand you.

Paul Young: Okay. Thanks, Amanda. I'll leave it there.

Amanda Lacaze: Thanks, Paul.

Operator: Thank you for the questions. Our next question comes from Reg Spencer from Canaccord. Please go ahead.

Reg Spencer: Thank you. Good morning, Amanda. If I could just jump back to Kalgoorlie. You mentioned earlier on the call that you guys were looking at various scenarios as to how you would look at capacity utilization across Malaysia and Kalgoorlie. I'd like to think that costs would come into that consideration. Clearly, it's too early to…

Amanda Lacaze: No, we think about that.

Reg Spencer: Well, I suppose that the question I'm asking is given that Kalgoorlie is more than likely to be materially high cost operating environment than Malaysia, can we then start to presume that, while pricing is where it is at the moment that you'd be looking at a high utilization rate in Malaysia and Kalgoorlie? And you then mentioned that, lower utilization rates, you said to increase the unit cost. So is there any chance that if pricing stays where it is, you may make the decision to leave Kalgoorlie, or switch it off?

Amanda Lacaze: This is, the answer to the last question is no.

Reg Spencer: Okay.

Amanda Lacaze: So I think that we had many options on the table at present to have really optimized this. We do have a variety of other process developments that we're working on that may see us utilize even say, for example, the Malaysian facility in a slightly different way. I really want to set the hedge running just right now with sort of what all those different opportunities are. Suffice to say, that's what we're working on, and I can absolutely assure you that cost is a key part of our assessment of those different scenarios.

Reg Spencer: Could I be so bold as to ask whether some of those scenarios might look at third-party feedstock?

Amanda Lacaze: Sure. Sure. But I just say again, everyone wants to ask about third-party feedstock. We've been consistent in the fact that we're happy to sort of assess third-party feedstock. If I ask you to go out and buy me some feedstock today, Reg, where could you buy it?

Reg Spencer: Good point.

Amanda Lacaze: Yes, so we are very open. We engage with, as I said all of the different junior and developing projects. We are very open about the fact that, we actually know what we're doing, and we're open to derisk their projects because they can start making sales of Con as soon as they start producing it, all of that sort of stuff. But we haven't. There is none available.

Reg Spencer: Understood. Thanks, Amanda. Just one last quick question again on Kalgoorlie, CapEx increase. I was just wondering if you could help me understand how you get such a meaningful increase at this late stage of development given that you're now right in the middle of or headlong into commissioning. It's not a small increase relative to the overall build cost. So and I know you mentioned some of the drivers of that given the extended commissioning time frame in the report itself. But is there anything else that you can help me understand why that that increase at this stage is so large?

Amanda Lacaze: It's a really good question, Reg, and I don't have as good an answer as you might like. But certainly, we've done a fair bit of work on electric backup capacity, those sorts of things. They were yes, we were hoping that we would have seen inside the gas pipeline resolved by now, but we've still got sort of LPG on-site and those sorts that that going on as well. We've got the finalization of a number of contracts, and you know on any major construction site that you'll have some which we've got a $1 million or $2 million variation, others where we're sort of still in dispute with the particular contractors. But when you get a project this size, just a little bit in a lot of areas actually ends up adding up to quite a lot. But I think that what I can tell you is that we internally have recognized and understand a number of the issues. Some of which were unavoidable because we were working on this compressed time frame and in the middle of COVID and blah-blah. But we've taken all of those and made sure that we address any of the issues that we see may have been there in the way we executed, the Kalgoorlie project and ensure that they are lessons learned for Mount Weld which is why you know, we can write with such confidence that it remains on contract and within budget.

Reg Spencer: Yes. Got it. Thanks, Amanda. As always thanks for your time. Thanks, guys. I'll pass it on.

Amanda Lacaze: Thanks, Reg.

Operator: Thank you for the questions. Our next question comes from Shannon Sinha from Morgan Stanley (NYSE:MS). Please go ahead.

Shannon Sinha: Hi, Amanda and team. Thanks for taking my question. A lot of mine have been answered already, but I just have a quick follow-up on the Kalgoorlie CapEx. So I just wanted to check if your original that $730 million, was there any contingency in that CapEx or not?

Amanda Lacaze: Gaudenz, can you recall that? I think maybe there was definitely contingency in the $570 million, which was the previous disclosure. And I'm not sure when you got to the $730 million, I think that we felt that we were sort of on pretty firm ground, which is why we didn't have a lot of headroom sitting in there. But I wouldn't want to mislead you on that. Gaudenz, can you recall, was there actually the $730 million?

Gaudenz Sturzenegger: No, we had contingency, but it was very, very tight as we did not expect too much at that point. So yes, it was but very minimal.

Shannon Sinha: Okay. That's fair. And I just had a follow-up around the pricing. So I think we've had a few on that in the opening comments that you're saying that you've started to see some improvement into April. Do you think that's really driven by the fact that you're holding back tons from the market? Or is there a real underlying demand uptick that you're expecting that could come to help draw down the NdPr inventory that you've built up?

Amanda Lacaze: We think that there's a real demand uptick. And so, we are I mean -- we are big enough that that sort of 500 tonnes into the market would have some effect. But it's really about, this is really about making sure that the oversupply from last year works its way through the system and as demand picks up.

Shannon Sinha: Great. That's all for me. Thank you.

Amanda Lacaze: Thanks, Shannon.

Operator: Thank you for the question. One moment for the next question.

Amanda Lacaze: Maybe no more. That's about an hour.

Operator: We have the next question from the line of Regan Burrows from Bell Potter Securities. Please go ahead.

Regan Burrows: Hi, Amanda and team. Much like the previous quarter, most of my questions have been answered, so I'll keep it quick. But just in terms of the inventory levels moving forward, I mean, if we see sort of similar pricing this quarter around that $55 a kilo NdPr, should we sort of infer that you're going to do exactly what you did last quarter in terms of the inventory?

Amanda Lacaze: That's not our current sales plan. One of the things that we're doing is increasing the production of our separated NdPr, which allows us to address some outside China sales that we didn't have previously. So our current forecast for this quarter sees us holding the inventory at or about those levels.

Regan Burrows: Okay. Great. And then just in terms of, I guess timing and confirming everything with now world coming online. You're still obviously targeting that 12,000 tonne per annum capacity by the end of calendar year '24. How do we sort of think about?

Amanda Lacaze: Year '25. Well, I'm sorry. We will be bringing it online during next calendar year, Stage 1 will be this calendar year. Stage 2 will be next calendar year.

Regan Burrows: Okay. Okay. Got it. And then in terms of the, I guess the capacity uplift between the two, I'm sure there's not a lot of guidance there?

Amanda Lacaze: Not yet. No. We will give it to you once we've, that was a conversation we had earlier about how much more can we wring out of that mill. And yes, you will see it in in production.

Regan Burrows: Okay. Got it. And then just with the cost capitalization at Kalgoorlie, I think you mentioned before that sort of those costs will be continue to be capitalized until, Mount Weld gets up to speed. Looking forward for that.

Amanda Lacaze: So until Kalgoorlie gets up.

Regan Burrows: Okay, got it. I think that was everything for me. Thank you for that.

Amanda Lacaze: Okay. Terrific. Thanks very much, Regan.

Operator: Thank you. We do have a last question from the line of Jonathan Sharp (OTC:SHCAY) from CLSA. Please go ahead.

Jonathan Sharp: Andrew and team, just one question from me. Coming up to the hour. So just one question. Just the U.S. Election is coming up. How do you think a change in the U.S. government would or could affect the direction of the critical supply chain for rare earths?

Amanda Lacaze: Well, Jonathan, that's a completely different question. That's interesting. Actually excuse me -- the way that we see, or what we have observed in the U.S. is that there is a great deal of alignment across both sides of the house with respect to China, and that in fact is something which started in Trump's Presidency in 2018. And in fact, all of this project that we have really gained momentum under the Trump presidency, which continued into the Biden Presidency. So we think it will not be a substantive effect.

Jonathan Sharp: Okay. Very interesting. Thanks. I'll leave it there, Amanda.

Amanda Lacaze: Thanks, Jonathan.

Operator: Thank you. There are no more questions on the line. I would like to hand the call back to Amanda for closing.

Amanda Lacaze: Terrific. Thank you all. As Jonathan said, coming up to the hour, my computer tells me that it is 10:59 in Sydney. So once again, thank you all for attending and for your questions. And as always, Daniel and Gaudenz will be happy to take any follow-up questions that you might have. I hope you all have a fabulous day. Talk to you soon.

Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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