Ladies and gentlemen, thank you for standing by, and welcome to the Lynas Rare Earths investor briefing. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. It is now my pleasure to introduce Lynas.
Good morning and welcome to the Lynas Rare Earths investor briefing for the half year ending 31 December 2021. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director, and Amanda is joined by Gaudenz Sturzenegger, CFO, Pol Le Roux, VP Downstream, Daniel Havas, VP Strategy and Investor Relations, and Sarah Leonard, the General Counsel and Company Secretary. I'll now hand over to Amanda. Please go ahead, Amanda.
Thanks, Jen, and good morning, everybody. As always, thank you for joining us to hear about what's going on in our world. Not surprisingly, I'm very proud to be announcing the results to report these numbers today. I'm also very proud of meeting several milestones in our growth plan, both during the half year and subsequently. After a very good first half, we are entering the second half with prices much higher than they were at the beginning of the first half and with a number of successful strategies in place to counter, in particular, some of the challenges that we've had from COVID-related logistics.
For us, our systems have ensured that COVID has been a business disruption challenge, not a health risk. Public and private vaccines in Malaysia and support for our people in Western Australia as they've been vaccinated means that we now have a vaccinated workforce. To date, while some of our people have, you know, suffered from COVID, to date, we have only had relatively mild cases. As the Omicron wave hits both jurisdictions in which we operate, maintaining our strong controls remains central to our successful operations.
I was lucky in the first half of the year to be able to spend a full f our weeks in WA during October and November. Just recently in January, I was able to spend a week in Malaysia. I'm really happy to report that our teams are in great shape, and they are energized and excited for the future. I'll just step through some of the slides that in our presentation that we've published today. I would like to just sit here and, of course, just, you know, admire the financial numbers. But I'm sure you've already looked at that. We have started this half year strong, of course, as prices have continued to grow and production is good.
We're building cash, and even where we've had to incur additional costs to deal with some of the external challenges, we've been able to keep those well under control. In this slide we've, of course, included the production numbers, but as well as that, for those of you who are, you know, sort of concerned about our spend rate, I've taken the opportunity to include the capital expenditure, where you can see that we are making significant progress in terms of our CapEx, which, you know, reflects two significant projects that we have on foot at present, both the Kalgoorlie Rare Earths Processing Facility and the PDF in Malaysia.
It's always worth noting, and I think that these ESG slides, which will sit in all of the corporate packs, really recognize the fact that corporations all over the world are understanding that they must include in their planning and execution, a recognition of the importance of meeting and exceeding the expectations of their communities, customers, investors, and regulators. For us, I've already talked to the fact that we have a vaccinated workforce. Some of the other highlights during the period, we're up to 24.5% of our senior executives now are women.
It's still below where we would like to be, these start to make a serious difference. There are some who would say that by virtue of having a female CEO, maybe the effect of the 24.5% is somewhat more. The more important figure for me is the 28.5% women employees at December 31. I really wanna recognize particularly some of the progress that we've made in both of our operating sites. As I said, I was up in Malaysia a couple of weeks ago, and, oh, it's just so great to be there.
I hadn't been there for t wo years and it was really exciting to be back on site and see the way that the teams have really taken control of opportunities to improve the plant and improve their operations. As we talk about particularly gender diversity in our organization, I was particularly proud as we went through each of the areas, and I spent time with the area managers and the process engineering teams, really to be able to report that probably 50% of our process engineering teams are now women. That bodes well for our ability to bring talented women through into senior management roles in the future.
It's great to have 24.5% senior executives today, but what we actually need is a pipeline coming through in the future. Of course, the other really critical matter on this slide is the environmental approvals which have come through subsequent to the end of the reporting period. I think that these are important not just because they allow us to progress these particular projects, but they demonstrate that Lynas consistently operates in line with regulation. They also demonstrate that we have the same standards in both jurisdictions.
It was one of the things that some of the anti-Lynas activists in Malaysia have said over the years is, "Well, you're only in Malaysia because you can't do it in Australia." Well, I think that as we move through the development of the Kalgoorlie facility, and particularly as we receive all of the various approvals, we make it very clear that that's not the case, and that we meet and exceed environmental standards in both jurisdictions. I would just point out that, you know, there was a fifth legal challenge against the Malaysian government's decision to grant, in this case, a historic six-month operating license.
The judge's words, I think, were particularly relevant. "Lynas has not breached any rules or regulations at the LAMP, and there is no evidence of any procedural impropriety, irrationality or unreasonableness." This is important because it's part of us actually standing up our responsibility to our communities and also to the environment. Now, I know many of you who watch, you know, sort of the overnight price of rare earths breathlessly would know that the market is strong, and it is growing. It continues to accelerate.
We see demand acceleration actually in all parts of the rare earth supply chain and across all geographies. Demand is strong inside China for inside China consumption. It's strong inside China for magnetic materials and/or motors which are then exported to outside China markets. For us, with a very clear focus, and I think most people who've followed us for a while know, you know, sort of that our key market today still is with our Japanese customers. We can tell you that demand there is strong, but we are continuing to deal with inbound demand, not just from magnet makers, but also from magnet buyers.
That bodes very well for the future. We've included some stats in here which I think you should find very interesting about, you know, the sort of demand growth that we will expect to come just from two products. The one being electric vehicles, which is of course the one that everyone gets most excited about, but also from wind turbines. Every one of those big turbines, you know, you've now got some of those new ones that generate huge amounts of power. These are going to drive significant growth in rare earths and demand for particularly the magnetic rare earths materials.
I'm sure there'll be some questions on that, and I'm delighted that Pol's with us today, and he'll be able to deal with all of those in some more detail. As we look at our operations, Lynas Malaysia has really very successfully managed a number of pandemic-related challenges. I know that it's been a matter of some frustration to some of our investors that we've continued to operate at about 75% of Lynas NEXT rates. I can tell you that's nowhere near as frustrating as it is for us as we look at our opportunity to continue to grow throughput.
Some of the things that we've done during this time, particularly around logistics, give us greater confidence as we move forward. We mentioned in December for the first time that we used a charter ship. There is an increased cost, of course, to using a charter rather than commercial shipping, but it pales into insignificance compared to our ability to ratchet up production. We will see the continued management of both commercial and charter ships as being a feature of our operations as we move forward.
What I guess is most pleasing for me as I think about, you know, sort of the last two years in Malaysia, and I was able to see it with my own eyes, was really the team has taken the opportunity to ensure that the plant is shipshape. That really means that they consolidated some of the initiatives that were part of the Lynas NEXT program, and they have added more. I think this week we're taking a delivery of our fourth heat exchanger, which is an important part of ensuring we improve recoveries and efficiency within our cracking and leaching area.
Right across the plant, there are really quite exciting initiatives driven once again by that process engineering team I was talking about to continue to improve the plant's reliability, availability and therefore our production throughput outcomes. At Mount Weld, I guess one of the really exciting things is that we've completed the overburden removal, which is associated with Mining Campaign Four. Just in the last week or so, we started mining ore. As indicated here, we've got a number of drilling programs related with the mining program.
Of course, that's in addition to our significant exploratory drill hole where we, you know, drill down one kilometer. We expect to be able to inform the market of the outcomes of the analysis of that material in the near future. As well as that, at Mount Weld, as in Malaysia, we are focusing on continuing to improve our operational performance, particularly with respect to recoveries, but also with respect to the way that we manage our water. It's interesting, we operate on one of the driest continents on the world, and we operate in one of the wettest continents in the world.
In both instances, really the challenge for us is to ensure that we continue to implement systems which see more recycling, and better use of our water. We continue on the pathway of looking to growth. In fact, the teams are spending their time on looking to see what are the best opportunities for us to accelerate growth. I talked about this a little bit in January, and I'm sorry we don't have any more detail quite yet, but the teams are working on developing this detail. In 2019, when we first constructed the Lynas 2025 growth plan, we were looking to grow production by about 50% by 2025.
That clearly will not see us keep up with the market. In all three locations that we operate and of course in those where we're looking to establish facilities, the teams are now working on what does a plan that will allow us to accelerate our growth plan look like, and have made some very, very good progress in those areas. Turning to, you know, the biggest project that we have on our books and the biggest project that we've been running since, you know, 2012. I know that some of you open each of our updates expecting us to provide a brief on cost overruns and schedule blowouts at Kalgoorlie.
Of course, with all of the uncertainty in our external environments, I would be foolish to say that you won't get your wish one day. However, there is no briefing today on cost blowouts or, you know, project timing issues because we remain on track. As indicated in the subsequent events section of the financial report, we received the ministerial statement right at the beginning of February, I think it was. Our team is on the ground. Our team is fleet of foot because of the way that we are managing this project and are able to manage multiple concurrent work streams.
As a result, once we had the ministerial determination, the three subsequent approvals required to continue to develop the Kalgoorlie project were received within a week. Actually, I sent a note to our construction manager. I said, "I hope you got the equipment on site." He said, "Yes, and the motors are running." In the real world, we started clearing the next part of the plant the day after we received the third of the subsequent approvals.
Now if you look at this picture, you can actually see that we have the whole of the production pad has now been cleared and is ready for you know, sort of continuing construction activity. Of course, we will have further clearing and bulk earthworks, activities associated with the site, but the first and most important thing is to ensure that we can get our production you know our production facilities in place. It's exciting. You can see that we've got all f i ve sections of the kiln now on site.
I'm told that when we lift it into place, each will be lifted, and then we will start rolling that, and we will weld those sections in place as we roll them around. I'm really greatly hoping that I will be able to be in WA at the time that we do that. We also have many of our tanks have now been delivered to site, and we're using them at present for water. You know, they will now progressively be able to be put in place. Of course, all of the kiln footings have been fully completed. Look, there is a long way to go.
This is a significant site with significant complexity associated with it, but the team is really doing outstanding work on the ground. We've now got. We've given you a few details around this. You know, as you look at this, you know, we've given you some details of what we've got ordered, how we've got it ordered, so we won't have equipment availability becoming a limiting factor as we move forward with the project. Just a few words around using our ESG framework in our decision-making within the business.
It is embedded in all of our operations and all of our projects. Of course, the most significant thing has been ensuring the health and safety of our people as we continue to operate with pandemic challenges. You know, for the first time, we really have to manage this very carefully in WA as well as in Malaysia. We have a model which works. We have a system which works. It does involve a significant program of surveillance testing of our people and a relatively well-oiled machine, I would say, in terms of responding to that, understanding whether they've interacted with others outside of the workplace.
At its heart, the primary mitigant that we're seeking here is to ensure that people who are infectious or are infected don't actually enter the workplace. As I said at the beginning, we are looking at the Omicron waves gathering momentum in both jurisdictions, so continuing to operate very carefully is essential. The other thing, of course, is that in both jurisdictions, the pandemic, in particular, has created challenges for the communities in which we operate. We have not lost any of our focus on our community programs.
In fact, we have accelerated it and ensured that those community members who have been affected by either the pandemic or indeed extreme weather events which have occurred in Malaysia continue to get our support. Likewise, in Western Australia, you know, we operate in a remote area and ensuring that we provide logistical and where relevant on the ground support for the local community. We've been very happy to do that. As we look forward, we continue to look to enhance our operational performance.
I can tell you that the plant in Malaysia is running better than it has ever done, and that bodes well for the future and is very exciting. We're looking to continue to develop our resource. I think, you know, everybody has read the various articles from commentators about increasing demand. We've been blessed by nature with the Mount Weld ore body, and continuing to develop that, including real exploration, is an important part of our plan as we move forward. Of course, continuing to develop our industrial footprint.
As we noted in the financial report, our p hase I project for the DoD was judged to be a success, and we continue to discuss with the DoD execution of subsequent phases. Our big challenge is to accelerate our growth plan. To do that, it's not just a case of do more of the same. We're asking our people to innovate, to really think about how can we do things better so we can do them faster, to really think about whether we've optimized our flow sheets for best effect for our communities and also for the environment. I can say with absolute confidence that I can see that happening in each of our sites.
Of course, that means that we're able to deliver excellent financial performance as we have today, but also excellent outcomes for our communities and also the environment in which we operate. With that, I'm very happy to take any questions that you might have.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. Our first question comes from the line of Jack Gabb with Bank of America.
Thanks and hi, Amanda and team. Thanks for the opportunity. Two quick questions from me. Firstly, just on your those long-term demand projections, which I think are really helpful, so thank you for them. Just on the, I guess, clarity. Firstly, is that on a, I guess, a fresh oxide basis, i.e. net of recycling? And specifically then on the EV side of that equation, do you assume any change in sort of NdPr per EV intensity, which I think is around about 0.7 of fresh oxide? Thanks.
I'm gonna pass that question to Pol, who's joined us today because he's the closest to that one.
Good morning. Yes, the answer is simple. It's fresh oxides only, so recycling is not accounted for. To the second part of the question, we see a very marginal switch away from permanent magnet technologies for motors.
At the end of the day, when you discuss with car makers, the price is worth the value just because of the weight, much lighter weight of permanent magnet motors and better efficiency that leaves you at even current price of NdPr to save a lot more money on the battery than what you would pay in addition for the cost of the motor. We don't see switch away from permanent magnet technology at the moment.
Thanks, Pol. Just a quick follow-up on the wind turbine side. Do we assume or should we assume that all of that offshore gigawatts of build all use sort of direct drive turbines, which I guess is the rare-earth permanent magnet one as-
Yeah.
Opposed to gear? Is that the way to think about it?
Yeah, that's a good way. A very big majority of new projects on offshore now are direct drive simply because you have a lighter structure, you have less maintenance than maintaining the wind turbines. Changing gearbox at sea is a very complex situation. We just look at this, looking at the offshore developments which is a safe development of consumption for NdPr. Adding to this, onshore, which is a mix of direct drive and gearbox wind turbines. Quantity is much bigger. A part of them, even with gearbox, is using permanent magnets. Actually the numbers are bigger than the offshore only.
Right. Thanks, Pol. That's really helpful. And then, Amanda, one for you, if possible. We obviously saw that the MP Materials got the award from the Department of Defense on the heavy rare earth side of the business. Are you still progressing your plans with the DoD? And how do you think more broadly about the opportunity for heavy rare earth separation, whether it be in the U.S. or Europe? Thank you.
Yeah. Thanks for that. I think that as we look at the U.S. government and funding of the rare earths industry, that they've demonstrated a determination to fund multiple projects across multiple parts of the supply chain. We continue in discussion with the U.S. government with respect to the heavy rare earths. As I said previously, whether it's in the U.S. or whether it's elsewhere, we will be separating our own heavy rare earths, the Dy and the Tb in particular. You know, high in demand and, you know, we will be separating those materials ourselves.
But the conversation with the U.S. government is an important one. Unfortunately, governments are as governments. They march to the sound of their own drum, and all politics are local. I think anyone who watched the launch of that would understand that it was very much about American, you know, made in America. But I don't think that they have lost any focus on the importance of a reliable supply chain.
Perfect. Thanks, Amanda. That's all from me.
Thanks, Jack Gabb.
Thank you. Our next question comes from the line of Hayden Bairstow with Macquarie.
Morning, Amanda. Hope you're well. Just a question on, I guess not on Kalgoorlie, but just on what are the plans to, you know, enable that smooth transition? I mean, what's the capacity to, I guess, step up front-end processing in Malaysia to make sure you can sort of build up a stockpile so, you know, there's obviously everything on track at the moment. Is there any sort of further delay? This is gonna have effectively no impact on your ability to produce oxide?
It goes all the way back to Mount Weld. In fact, what you're talking about in building buffer stock in the system. We have a separate stockpile at Mount Weld of concentrate that we've produced. It is certainly our expectation that there will be at least a period of time where we operate both facilities. We will be managing that.
As I said, the Malaysian plant is running better than it ever has. Pol and his team have done an outstanding job there. I don't think that I would say that we're gonna ever be able to build a significant stock of finished product because demand is so very strong. We certainly have detailed planning for that, the period between now and the 30th of June 2023.
Okay, great. Just on the operating rate, I mean, you touched on it a little bit, you know, what point do we expect to start pushing to say, you know, 80% of the next capacity and then a little bit higher than that over the course of this year?
We're certainly hopeful that you'll see that sooner rather than later.
Are we likely to see sort of 100% of that Lynas NEXT target before Kalgoorlie's up and going? Or is that something that you'll push beyond once you get there and then look for the Lynas 2025 target ?
I'm very loath with all of the uncertainty in the external environment. I mean, I'm always loath to provide guidance, but I'm more loath than ever with the uncertainty in the external environment to provide guidance. You know, even the opening up of WA brings its own challenges.
You know, being locked up has certainly given us stability there, but with it, you know, as everyone can see, it's not going to avoid its own COVID wave. You know, sort of managing that carefully is gonna be critical to us continuing to feed Malaysia. Continuing to manage logistics is critical to feeding Malaysia. I can tell you that we have ramped up past 75% now, but I'm not gonna give you an endpoint on it today because it's just too risky.
Okay, no problems. Yeah, we've been swimming in our own fishbowl over here, Amanda, but it's certainly ramping up pretty quickly on the COVID side.
It is. I've made sure that I'm all prepared so that if the border does open, on the third, I'll be able to get to WA sometime during March.
Okay, great. I'll leave it there. Thanks.
Thanks, Hayden.
Thank you. Our next question comes from the line of Daniel Morgan with Barrenjoey.
Oh, hi, Amanda and team. Just on that Kalgoorlie plant. Can you just outline what's on the critical path for the build now? I mean, looking at the picture of the site you've given us, there seems to be a lot of equipment on site. There's a lot of, you know, foundation work going on. Is it people and can you talk through the people you have? You know, how many you need and, you know, are you ramping up the people side of things to build this project?
Yeah, yeah. We've significantly increased the size of our team and are continuing to do so virtually on a daily basis. You know, the piece now is actually constructing stuff. You know, most of our engineering is substantially complete or complete. You know, that's critical as we start to move into building buildings and putting equipment inside those buildings.
So clearly that's important. At this time, we're finding a lot of very positive response from people who either currently live in Kalgoorlie or would like to live in Kalgoorlie, and that, I think, bodes very well. It's always been a key part of our thinking on this plant that we want to have a residential workforce, and I think that we're seeing the benefit of that as a strategy.
Okay. Thank you. At Mount Weld, you've undertaken some drilling, and you said you're gonna update the market on the outcome of that. Could you just talk to the scope of the update coming? Is it a new resource reserve statement coming? A new mine plan? You know, what are you gonna outline there?
No, we're quite a long way from doing that. I think there's two parts to what we're doing in terms of our drilling program. The first is all of the grade control drilling, which is associated with Mining Campaign Four, and we've given you a few numbers on the number of drill holes that we've done as part of that program. We also, as you will recall, did the one kilometer down into the fresh carbonatite below the floor of the current open pit mine. That's what the geology team has been doing a lot of work on over the last six months and are just completing that study.
What it will do is that it will frame an exploration target rather than be a leap to an increase in the resource and reserve. The other area where we will be ramping up, you know, sort of our drilling effort will be continuing to look for water within the local area.
As I said, water remains, you know, sort of a critical and potentially limiting factor. We can increase the amount that we recycle, certainly, but we also need to be sure that we have ongoing water sources. I wish I could give you say that we'll have a resource and reserve update imminently. It won't be imminent, but we'll have some very interesting information for you.
Thank you. Maybe a question more for Pol. The China quota on production is 20% higher year-on-year, but the rare earth prices are surging. Maybe you can talk to, you know, why is that? Is it possible that whilst the quotas are 20% higher, maybe production isn't or won't be? Can you just talk to the market dynamics at play? Thank you.
All right. I think it's a great question. There are many questions around how fast the demand grows. Fact is, after the announcement of quotas increased by 20%, the price of NdPr in China continued to grow from CNY 900 to CNY 1,100, which shows that the situation continues to be extremely tight. In fact, when you look at the balance of NdPr globally, in the past t w o years, basically, supply was a bit lower than the demand. What we've seen, actually it's all the existing stocks going down.
A typical magnet maker in China would run with 6-10 months of stocks. Today, they hardly get o n e month ahead of them. The situation is very tight, and that means that all of existing suppliers, of course Chinese, but also Lynas, have a very simple, clear, crystal clear priority, grow as fast as possible.
Just on that, one more question, Pol, just on China. I mean, it's very hard for us externally to look at China and work out, you know, what the rare earth industry is doing, and I appreciate you being in the industry, talking to customers. Can you outline do you think China has material surplus capacity in the rare earth industry, or do you think that has been and is being consumed? Thank you.
Actually, it's an interesting question. Potentially they have additional capacities of production separation, but a number of them need to be revamped. They've been idle for a while, so it might take a bit of time for them to restart all this idle capacity. Interesting point, if you look at the global balance, and sorry, I don't have the details here to present to you, but today, a very big portion of ore processed in China comes from outside China. Ionic clay basically in China is shut down, and the only source of ionic clay is Myanmar. Then you have concentrate, as you know, coming from U.S.A.
It's a big change in the industry situation where there's ore, a substantial part of ore comes from outside, and that's the way you should understand the current ongoing restructuring of China rare earth industry. The primary goal is to have a better purchasing power. Rather than having four or five companies fighting each other to get access to get their hands on imported ore, having a single one, that's basically a big drive for this restructuring. It's a big change. Question, I mean, answering your question, in terms of ore, not so much. In terms of processing, it will take a while.
Thank you very much. I'll pass it on.
Thanks, Daniel.
Just a funny comment. Yesterday I was talking.
Thank-
to Chinese. When you say you have a hard time to understand Chinese, the Chinese told me a funny story. I was talking about where do you see the price going, et cetera, and they say, "Well, we learn from Australians. They have iron ore, and they increase the price a lot, so we do the same with rare earths." You're lucky you have Lynas, so you are in rare earths and iron ore.
Our next question comes from the line of Reg Spencer with Canaccord Genuity.
Thanks. Good morning, everyone. Amanda, I was wondering if you could maybe expand on your comments around how Lynas might look to keep up with the market. I know you've got an amazing ore body there. There is the potential for that to get even bigger. But if we had to think about what that keeping up with the market might look like, you know, might this involve increasing capacity at Mount Weld supported by any expanded resource? And if so, what would the main capacity constraints that you would then have in Kalgoorlie based on the current design?
Yeah. Yes, we will have to increase production at Mount Weld to achieve the sort of growth targets that we're seeking to achieve. We have to produce a lot more concentrate. And of course, that's another reason why we're doing further exploration because, you know, if we, say, double production, we don't wanna just halve the mine life. We wanna be able to continue to refresh the reserve.
It may be that, and this is why as we look at the deep drilling, it may be that as we move into the fresh carbonatite from the weathered zone which we're currently mining, that we may implement a different flowsheet to be able to achieve those outcomes. We certainly have already sort of flagged that we'll need to invest in a number of the utilities at Mount Weld. Power, you know, we, like so many other remote sites, still have a power station powered by diesel. We need to transition from that.
We'll do it in the first instance to a gas fired power station, which will make a significant dent in our greenhouse gas emissions but ultimately move to a renewable solution for at least a significant portion of our power draw. We also will need to invest in our water. You know, another key utility for being able to run this facility in Mount Weld.
In terms of the Kalgoorlie facility, it has been designed in such a way that the ancillary elements, other than the kiln are actually configured for much larger throughput and indeed additional processing if that becomes relevant. You know, we're focused because it's the essential piece that we're focused in the first instance on making sure that we have replacement capacity, but we actually have the ability to ramp that up and to add to it if relevant.
The other area, of course, and you know, that is an obvious opportunity is that any time that we invest in our current assets, we'll be able to move faster than any time that we're doing anything on a greenfield basis. Opportunities to continue to drive throughput, particularly in the downstream area in Malaysia, are a matter of detailed design at present. Investigation and concept is well progressed.
Really what we're looking at now is what would be the implementation path for that. It's a large task. There's nothing with Lynas NEXT, we were able to really debottleneck our way to a significant uplift in production. If we want to keep up with the market, then we're talking about significant increases in throughput at each stage of the production flow sheet.
Understood.
Yeah.
It sounds like it'd be quite an undertaking. Just on that note then, Amanda, relocation of the cracking and leaching from Malaysia to Kalgoorlie, that gives you more footprint to work with for separation in Malaysia. I get that. In terms of expanding separation capacity, this is where the U.S. initiatives or elsewhere, as you pointed out before, could fit into those plans.
Just on that front then, with the U.S. plans. It doesn't sound like that project is a question of funding because you're obviously generating a lot of good cash flow. Pricing is strong. It doesn't sound like it's really approvals either. If it's not a question of either, would your acceleration of the U.S. be reliant upon the DoD, which seems to be moving, you know, pretty slowly?
Just to go back, Reg, I think that I would just point out that one of the things that we've put on this chart about accelerating is looking at innovative solutions to our ability to grow throughput. There is work that we can do to continue to uplift our throughput capability by putting in innovative solutions. That is certainly one of the things that we're looking at. In terms of the U.S., ultimately the question for us strategically is, if it's coming off our balance sheet, is the U.S. the right place for us to build a greenfield site?
If it's coming off the USG balance sheet, then we think it's a fabulous place to build a greenfield site. That's the reason why we continue to work with the USG. I mean, in terms of value for our shareholders, having somebody else pay for the growth is absolutely worth it. Just right now with two very large projects on foot, you know, we are working through that process and we're confident that we will get to where we need to get to for the benefit of the business.
Understood. Thanks very much, Amanda and team. Appreciate it. I'll pass it on.
Thanks, Reg.
Thank you. Our next question comes from the line of David Deckelbaum with Cowen.
Morning, Amanda and team. Thanks for squeezing me in here.
You Americans are always so polite.
Along those same lines, I would like to point out that I have no personal wish that you experience cost overruns related to Kalgoorlie, not looking for that at all. Yeah. I did wanna ask, in the past, I think there's been some potential brought up around Kalgoorlie expanding its capability into separation of rare earth elements. If that becomes part of the Lynas growth outlook over time, would that require a new round of significant permitting beyond the scope that you've already achieved?
It would certainly require permitting. I'm not certain that it would be significant new permitting. It certainly would be a substantial addition to the extent that we would be putting in new separation equipment. On the other hand, as I said, the utilities and ancillary services have been designed and configured such that that site can do more throughput, but it could also potentially do more processes. At this stage we haven't you know sort of drawn a timeline on what that permitting would be.
As you would expect, you know what I mean? There's nowhere in the world that you can say, "Well, I'm gonna do something," and it's not gonna come with a permitting timeline. Experience would suggest that adding to a brownfield site is generally an easier path than Greenfields approvals.
Sure. I guess just along that same line of questioning, you remarked about the U.S. expansion projects, and certainly if the U.S. government foots the bill there, it's obviously attractive in its own right. When we think about other avenues for growth, you know, would there be a reason if you had to internally generate, you know, the cash required for a future growth project that anything would be outside of Australia?
Oh, yes. Yeah. We've always considered our industrial footprint on the basis that the optimum configuration really is having upstream close to the resource and downstream close to our customers. Malaysia has been a key part of Lynas' success over the years because Malaysia is close to our customers. That allows us to work with them. They come to site, they spend time with us technically and in a development sense, which works very productively for us. It's also a low-cost jurisdiction.
Sure, as we're sitting here looking at 1,100 renminbi a ton prices for NdPr, we can say, "Oh, you know, why are you spending loads of your time thinking about cost?" Well, because it's the right thing to do, and we need to really understand that we can be successful when the market's strong, and we can be successful if the market is not so strong. Malaysia is an excellent location in terms of proximity to customers and also in terms of its cost structure. Are there other jurisdictions which may offer us similar benefits in terms of being close to customers and/or low cost? Well, yeah, certainly there are.
The idea of being in the U.S. is that the U.S. has not had a robust rare earths value chain operating in that country now for 30 years. Our experience is that with security of supply of the raw material, you are more likely to get the downstream development. Part of us going to the U.S. is a belief that if we are there, that there will be further downstream development occur, and then it will be in line with what we're talking about, which is upstream close to the resource, downstream, close to customers.
Just the last one from me. On the U.S. plants, is there a scenario where you might pursue just a heavy rare earths separation facility with a, you know, sort of multi-year delay around lights, or would they have to be occurring in conjunction with one another?
There will only be one facility. I think this is really quite important for people to understand that, if we're gonna have light separation and heavy separation, it's not like it's two, you know, sort of separate and independent plants. Exactly the same way, you know, we talk about the ancillary and services and utilities on any site. To get efficiency on those, you need to have critical mass for operations on that site. Where we started with the conversation with the USG was certainly about heavy separation because it was the area where the USG is most exposed. It remains the area where the USG is most exposed.
If we look at this and we think about, well, you know, how should it be prioritized in terms of execution and delivery, then I think without question that the heavy still is a more important path than the light as far as the USG, and particularly the DoD, who are the funding source, particularly for the DoD as far as the DoD is concerned.
Thanks for the time, Amanda.
Thanks, David.
Thank you. Our next question comes from the line of Paul Young with Goldman Sachs.
Morning, Amanda. Hope you're well.
Yeah.
A couple of questions around the ramp up of Kalgoorlie and sort of matching that with Mount Weld. First question is around your experience with the ramp up of the kilns in Malaysia. What's your thoughts around the timeframe on the ramp up of the Kalgoorlie facility?
Our secret and not so secret weapon is the fact that the people who have already been through that longer ramp up phase will be the people who are managing the ramp up of the Kalgoorlie plant. Our project director for Kalgoorlie is Grant McAuliffe. He was the site GM in Malaysia for a number of years, and before that, he was actually the one who ramped up cracking and leaching. We will have some of our skilled Malaysian team available in Australia at the time of the ramp up, but we will also have some of the people that we'll be recruiting to run the facility here go up and work in Malaysia for an extended period of time.
They're able to move up the knowledge curve very quickly. The length of time that it took us to get cracking and leaching fully operational in Malaysia we feel is not going to be the sort of timeframe that we're talking about in Kalgoorlie. Because not only are we not gonna make the same operating mistakes, but actually we're building a better plant, which should see us be able to do that a whole lot faster. There will be a ramp up period, and we have factored that into our planning.
The next question... Thanks, Amanda. The next question is around the, just the matching of Mount Weld to Kal. The Kal, the cracking and leaching facility, you know, will have concentrate throughput of 2x out of, you know, give or take what Mount Weld produces at the moment. You know, it's not an easy expansion of Mount Weld, but, you know, it's a small plant. You know, there's certainly a lot more difficult expansions on a milling and float circuit going around. How do you think about increasing the capacity of Mount Weld to match the ramp up of Kal?
Are you gonna do that beforehand or after? Second to that, obviously your head grade will come down naturally over time. How do you feel about, you know, expansions in Mount Weld to sort of continue to produce the amount of resource you need to actually fill Kal?
All good questions, and we have a fully staffed project team actually looking at all of those right now. As I indicated, utilities is really a critical part of, you know, I mean, Mount Weld is a long way from anywhere, and so making sure that we have power and water are a crucial part. As you pointed out, the mill and the float, they're relatively easier certainly than most other places. It's worth noting also, and as you say, Paul, it's a little plant. It's a little plant because of the extraordinarily high grades of the material that we're processing.
Yes, to take the next step, we're going to need more plant because we're gonna come down in head grade. We're still gonna be, our head grade's still gonna be, you know, ahead of any of the aspiring producers. We're working through all of that, and there are some parts of that plan which we would say are just absolute no regrets elements and that we should do them whether we were expanding or not expanding. There are some other parts where we will have to make the decision based upon what we see in terms of resource over time.
Because we don't want to overinvest in areas if we then move into processing a different type of material. You know, as I said, we're processing at present from the weathered zone, but as, you know, one of the important parts of the exploration is understanding how that material may differ as we move into the fresh carbonatite.
Got it. Okay. It sounds like studies are work in progress. That's fine. Amanda, just the last two things from me, just on the cash flow statement. Can I just ask around that, the rehabilitation discharge, that payment there, is that like a, is that a yearly event now? I know the provisions aren't wound by the same amount, but that's cash out the door. What is that? And then secondly, on the CapEx, is all the step up year-on-year Kalgoorlie, or is there some sort of creep around sustaining? Thanks.
Okay. I'm gonna let Gaudenz take the first part of the question.
Yeah. Thanks for the question. I think specifically for the rehab, the discharge we have seen in the half year is really specifically related to a payment which was made under the contract we have for the PDF set up in Malaysia. I think there are another couple of milestones which are coming, so will also lead to a discharge. However, these are overall, it's a very specific element. As soon as we have built the PDF, I think you would see rather normal development of this expense.
It is a special event this half year. However, if you go back to the agreements we published for the PDF, you will see one or two other ones showing the same development. Could I just quickly ask you to repeat your second question?
Yeah. It's on CapEx, and obviously that'll ramp up over the next 18 months along the S-curve, as you know, Kalgoorlie's completed. But just the $40 million increase year-on-year, is that mostly Kalgoorlie or has there been some, you know, sustaining CapEx sort of creep coming in?
It's, uh-
Yeah.
Well, it's both. It's mostly Kalgoorlie. That's correct. Obviously you will see that continuing, particularly if you're also looking at the capital commitments. You'll see how that increases, and you will see that following through with the development we have at Kalgoorlie.
In addition, there is some increase. I mean, as we look at our facilities today, they're ten years old, and so we are taking the opportunity, as I said, you know, in Malaysia during the period of time when we've been, when throughput has been lower, Pol and his team have done, you know, sort of a full inspection of the facility and understood where are the areas we really should be improving the plant, 10 years on. So there is some small creep there, but the vast majority of that step up actually relates to the Kalgoorlie facility.
Okay. Thanks, Amanda. Thanks, team. That's really helpful, and I'll pass it on.
Thanks, Paul.
Thank you. Our next question comes from the line of private investor Jay .
Hi, Jay .
Hello, Amanda and Jay from Colorado.
Yeah. How are you?
How you doing?
Good.
I couldn't be better. Life is good. Very interesting, but good.
Yeah.
Hey, I have a couple questions for you. First question is, you know, you guys have almost 100% participation in vaccinations in the Malaysian plant. I'm just wondering.
Yeah.
If you can speak a little bit as to how you accomplished this. A corollary to the first question would be, would you be willing to come over to the United States to Washington and sit down with our Congress and get them to agree on, well, anything?
What can I say? I think that everywhere in the world we see the most rapid uptake of vaccination comes from one or both of two sources. The first is if people see a lot of people around them getting sick. In the September quarter last year, we had a very large Delta wave in Malaysia. That coincided, or we were just a little bit ahead of, and actually we've had quite a lot of cases even before that with our ability to participate in a public-private partnership to deliver vaccinations.
We weren't reliant on the government to actually run the vaccination centers, and we were able to work with our local health provider to do that. Because we were able to do that, we were therefore able to manage our workforce in a way that allowed them to turn up and present their arms for vaccination. We scheduled it, and we managed it, and we managed the communication on it. There's certainly a very compelling reason for our people as they watched people around them get sick. There's a very compelling reason for them to take up the vaccine.
We have one person who's not, and you know, our standard operating procedure is that if you're not vaccinated and you wanna come to our site, then you actually have to take a daily COVID test, and you have to pay for it yourself. You know, once again, that's sort of a strong motivator. Of course, the other thing which sees people take up vaccinations is government mandates. In Western Australia, there's government mandate that says that anybody who's working on a remote site, which is what we have in both Mount Weld and also in Kalgoorlie, must be fully vaccinated to be able to work on that site.
That certainly has made our lives a lot easier there, and that's why I'm saying that now we're looking at really a fully vaccinated workforce in both locations. Unfortunately, vaccination is not going to stop people getting sick, but it does appear to be doing its job in stopping people getting very sick.
For us, it's managing this on a business interruption basis because we can't afford to have a lot of our people either off sick or furloughed because they're close contacts. We're managing it carefully, and as I said, we have a very strong surveillance process. It is all about making sure that our people stay well, you know. I think our people recognize and appreciate that that is our first, you know, always our first objective.
Okay. Thanks. Second question I have is, you don't hear much about this at all, but you have a big involvement in EcoVadis and also the United Nations Global Compact, you're signatory. Can you speak a little bit to how important this is gonna be in a macro sense for Lynas in the future? Because it really is a big achievement, and it's not talked about very much.
I'll let Pol speak to that because I think this point about sustainability, particularly with respect to meeting our customers' requirements, and EcoVadis is an important part of that, is something about which he's quite passionate.
Yeah. Actually, Lynas' business model is to supply rare earths outside China in a recognized, sustainable way from the start. For a number of customers, it's a must-have. If I take the example of EcoVadis, this was required from a certain number of European customers. If you want to supply us, you need to have a certification from EcoVadis. Just to highlight, I mean, we are very proud of this. EcoVadis is actually an organization that manage audits on behalf of all the chemical companies of Europe who joined together in a program called Together for Sustainability.
They audit in that regard all their suppliers, which is more than 10,000 suppliers worldwide, and 5% of 10,000 are gold medalist, and we are one of them. We are very proud of this achievement, and it is essential in our business. It's opening a door, a very important door. You can't do business in Europe today without this kind of certification. Simple. The same applies to a lot of especially green applications.
EV, wind turbines, you know, the worst thing you want is to be blamed for developing an electric car with people saying that, "But to do that, you are having children working in your factory in Malaysia or you're killing the environment." That would kill definitely your business as a carmaker. Carmakers are extremely cautious and actually having a very strong demand for their suppliers to be recognized, certified. This is all the approach we have taken in Lynas to claim or to justify our performance with certified audits.
I will just add one last point on this, is that for us, the key criteria is the life cycle assessment, which is basically evaluating the impact on the environment of all our operations from the mine in Mount Weld to the big bags. We have done that. We are certified, we certified our results by SGS, so external recognized audits. That is very valuable because there are. I mean, you need to have numbers to answer to fake news, basically.
Say that if you use NdPr from Lynas based on numbers, and we did that also with our metal makers and some magnet makers customers to say, "Well, down to the magnet, this is so much CO2 we emit, and this is a lot less." Surprisingly, in some past presentation, we showed that there was less CO2 emissions following this path. Lynas, JL Mag, Neo, as a supply chain down to the motor in Grundfos, less CO2 emissions on the making than the same motor make as a induction motor. You need to have numbers for that to address, you know, the especially social media are sometimes very powerful. It's essential for our business.
Okay. Well, thanks.
Thanks, Jay.
Thank you. I'll now turn the call back over to Amanda for any closing remarks.
Okay. Look, once again, thank you everybody for joining us this morning. It is really a delight to be able to present, you know, the half year results. We, like all of our teams, are feeling energized and excited about what's now really a strong and a buoyant market. It's just terrific to be working on really substantive growth plans for our business, as we look forward over the next 3 years -4 years. Thank you all, and I think I'll see some of you over the next couple of weeks, either online or in person.