Good day, and thank you for standing by. Welcome to Lynas quarterly results briefing conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lynas Rare Earths. Please go ahead.
Good morning, and welcome to the Lynas Rare Earths investor briefing for the quarter ending 30 June 2024. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. And joining Amanda today are Gaudenz Sturzenegger, CFO, Daniel Havas, VP Strategy and Investor Relations, and Sarah Leonard, General Counsel and Company Secretary. I'll now hand over to Amanda. Please go ahead, Amanda.
Good morning, everybody. I see we have plenty of people on the call, which is always a delight. During the quarter, the first shipment of Mixed Rare Earth Carbonate left Kalgoorlie. After the incredible challenge of constructing that plant on the previously very constrained timelines, this was certainly a milestone to be celebrated. But frankly, we were all just a bit too busy to spend much time celebrating. I think that the quarter could best be described as one where our internal focus remained firmly on improving efficiencies, reducing costs, and continually challenging ourselves to find new ways to improve and flourish in a tough market.
Of course, to continue to deliver on our growth projects, which will deliver extra capacity, but will also, importantly, deliver greater efficiencies, improve safety via new automation processes, and new revenue and margin via initiatives like our new DyTb separation circuit in Malaysia. I think everyone on the call knows the price of NdPr is stubbornly sticking at five-year lows. We all knew it would come off its very highest highs, but these lows really reflect continued slow conditions in the Chinese economy, and we watch with interest as we see the various economic initiatives being taken there. Despite those low prices, we're pleased to continue to report positive operating cash flow.
That reflects our ongoing commitment to continuously improving our cost competitiveness, and we are confident that, alongside Northern Rare Earth, we're the only two firms that can be profitable at these price levels. Free cash flow, as pointed out by some keen observers, I was reading one of your reports yesterday, that is after CapEx, is negative, but that's not surprising given the large capital projects that we are still completing. And that is our choice as we continue to prepare for future market growth. However, as also identified by certain keen observers, we are not accelerating the Kalgoorlie ramp up, as we may have done under different market conditions.
During the quarter, production volumes were down, but actually well aligned to the market, and we continued to meet all customer needs from that production and a slight reduction in the inventory that we held at the end of the previous quarter. The bearing failure in Malaysia was not forecast, but really, you know, on reflection, was not completely unexpected. As one of our people noted, he had been working for over 10 years, God rest his soul. With the extra capacity coming online at Kalgoorlie, we now have the opportunity to plan some additional work at Malaysia, which is consistent with the age of the plant, and we will provide some further updates on that when we deliver the annual results at the end of August.
In some other exciting news, which is canvassed in the report, we now have Carey Mining on site. Carey Mining is the first Aboriginal owned business in Australia. Daniel originally set this up, Daniel Tucker set this up about 30 years ago. It's very exciting to have them involved. Daniel grew up in the Laverton area and has a strong connection to country. They bring with them new kit, which is, you know, really quite exciting to see on site. And the deployment of people and equipment to site has gone very smoothly, and we look forward to a long and productive relationship with Carey. During the quarter, we also announced the very efficient implementation of a new circuit in Malaysia to separate our dysprosium and terbium.
These are materials which are required in high-performance magnets, and we have the great benefit, of course, now in Malaysia, of being able to continuously improve and enhance the operations at that plant now that we have, you know, sort of confidence about our ongoing presence. And then, of course, we had, and we've included at least one picture, I think, the energization of stage one of the Mount Weld expansion and great progress on phase two. It's for any of you who have visited Mount Weld, coming to visit now, you will see that the site really looks very different from what it's looked like over the past decade as we complete this really significant expansion.
Work on that project is proceeding very well, and, you know, we're really pleased with the fact that stage one will be fully commissioned and tied in with current operations over the next few months, which will allow us to progressively increase Mount Weld output as we debottleneck the dewatering stage. And then, of course, Kalgoorlie, and I'm sure some of you will be at Diggers & Dealers in a couple of weeks, and I know that you will be very impressed by this facility. I was there a couple of weeks ago, and it really. It is a thing of beauty to see a brand-new sparkling plant. It's even better to know that it is operating as designed.
You know, we've got a number of initiatives there which really go to this point about efficiency and automation. We mentioned one of them in here, which is the use of what we call Rotainers, which are basically bulk in containers, which we fill at Mount Weld, so we don't need to have the manual labor to fill the bags, and which then are fully automated, operated by someone with what really looks a bit like a Nintendo game console, to lift that container and tip it into the hopper, and then bring it back down. So all really very exciting. We are approaching the end of our very heavy capital investment phase, with Mount Weld expected to complete this year.
The LAMP industrial plan, the continued enhancement of, you know, our facilities in Malaysia are on track, and the Kal ramp, Kalgoorlie ramp up proceeding. We will continue to focus on pushing operating costs down. Key areas of focus in that include, clearly, everybody here who even knows a little bit about mining will know that recoveries equal margin. We have significantly lifted recoveries at each of Mount Weld and Lynas Malaysia. As we bring on our new, particularly at Mount Weld, our new facilities, we will be able to, you know, improve that further as we bring in our fine grinding circuit.
Last night, you would have seen that we released an announcement with respect to signing contracts with Zenith as a builder and operator of a gas [audio distortion] hybrid renewable power station at Mount Weld. That has always been part of that program, is to identify ways that we can, as we increase our energy consumption, do it in a way that is consistent with our ESG objectives. So all in all, a fairly uneventful quarter in some ways, very much focused on ensuring that we continue to improve our business so that we... You know, remembering that our business is not about what we produce, but it's about how much money we make.
And so really, we are managing all of our activities at present to ensure that we maximize margins and profitability in what continues to be a very challenging market. And with that, I am happy to take questions.
Thank you. We will now conduct the question-and-answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by as we compile the Q&A roster. Our first question comes from Chen Jiang of Bank of America. Please go ahead.
... Good morning, Amanda. Thank you for taking my questions. Three questions from me, please. So congrats on the heavy additional Heavy Rares capacity from Malaysia. I'm just wondering, how should we think of the total Heavy Rare Earths you can produce from Mount Weld, which won't change? Does that mean the Heavy Rare Earths you are going to produce from U.S. going to be reduced? How should we think about the feedstock? Thank you, Amanda.
Thanks, Chen. So at this stage, we are considering feeding both facilities with material from Mount Weld. But we are also discussing with the various different projects, which are focused on producing materials which have Heavy Rare Earths in them about potential future supply. As you know, there are many projects. There's relatively little production outside of Southeast Asia at this stage, with the exception of one of them in South America. But we are actively engaged. We certainly would like to see additional material come into the market, but if not, we will feed from our Mount Weld deposit.
Right. Thanks for that. Just a follow-up, Amanda. Do you have to change your Mount Weld mining plan in order to do that?
We will, and I think I've flagged this previously. I think that, you know, over the past decade, we've primarily mined as miners will, for grade. However, with the additional drilling that we've done, particularly over the last couple of years, we have a much better understanding of our ore body by element as well as by grade. And so we do have the opportunity to become much more sophisticated in our mining plan and to mine by element as well. So that will allow us to really look at ways to optimize the amount of heavies within our mining program. The other thing is that, you know, over the last number of years, you know, as we talk about recoveries, our absolute laser focus has been on NdPr recoveries.
The current process does not work as efficiently for our heavies, and we're doing a lot of metallurgical test work at present to increase the proportion of heavies, particularly DyTb, that we recover through the process. And it's highly prospective, and we're pretty confident about being able to improve recovery rates as well. So together, optimizing the mine plan and improving the recovery rates will give us, you know, a much better profile in terms of feedstock.
Sure, sure. Thank you so much, Amanda, for your color. Maybe last questions on, you know, on the sulfuric acid from BHP's Nickel West closure. Understand that BHP will continue, you know, to supply the sulfuric acid by importing from the spot market. I'm just wondering who's going to bear the cost of importing? Is that BHP or Lynas until 2027? And then what's the plan after 2027? Thank you.
Okay. So we are actively engaged in discussions with BHP at present. As you would appreciate, some of those are actually commercial in confidence. We will provide a further update. Suffice to say that in, as we indicated, BHP, we have a contract with BHP. It is a contract which requires best efforts to continue to supply us even, you know, right from the beginning. It always conceived of there being times where imported acid would be required alongside that produced from the smelter, because, of course, you know, there were major maintenance shuts, which were going to occur at the smelter in any case. And I think, you know, we have the, you know, direct relationship with BHP.
I think also that most people would be alert to the fact that, you know, we are not the only sulfuric acid user in [audio distortion ] the only sulfuric acid customer of BHP. And so there are industry initiatives looking at how does this logistics chain get, you know, rebuilt so that it works for inbound, not just outbound, sulfuric acid management. So look, we're working on it, Chen. It's not, you know. It's not as easy as our sulfuric in Malaysia, which is literally over the back fence, but, you know, we are confident that we can find a pathway through.
Sure. Sure. Thanks, Amanda. I have more questions, but I will be passing now. I'll get back to the line later. Thank you.
Thank you.
Thank you. Our next question comes from Austin Yun of Macquarie. Please go ahead.
Morning, Amanda and the team. Two questions for me, please. The first one is on the downstream production in Malaysia. I understand that one of your kilns was offline for one month. I just came to understand how should we think about the production ramp up and the production profile for the next six months? Come back with the second one. Thank you.
Okay. So, Austin, as I just indicated, it is a timely reminder of the fact that, you know, we properly, you know, in the period when we had the challenges on the license, fully depreciated the cracking and leaching plant in Malaysia. And, you know, operated R&M on the basis of recognizing that it might be a time-bound facility. It is now time for us to reconsider what needs to be done there for a plant, which is, you know, a decade old and, you know, I think most people would say fairly, you know, sort of the environment, it's a hot and humid environment. You know, the facility itself is, you know, sort of quite challenging.
Our maintenance team is really assessing all of these items. Actually, a bearing failure is not something that they can easily predict, but looking at how do we make sure that we do all of the work which is necessary to set this facility up for the next 10 years, is the key task of our team in Malaysia at present. I will give you a further update on that when we announce our annual results at the end of August. But we certainly... You know, this is the area now that we've got Kalgoorlie online, that we do have some headroom in terms of capacity, so we will make our plan to optimize production and to align it to market conditions.
Okay. Thank you, Amanda. Just want to clarify to make sure that I understand it properly. So, are you expecting to do a more major maintenance at the LAMP in Malaysia, which means lower production rate and a higher CapEx for the next six months in Malaysia, while the production shortfall could be met by the Kalgoorlie ramp up? Is that the right way to understand it?
No, I don't, almost. But the first thing is that we have, and we've already indicated to the market, and what we call the LAMP Industrial Plan, which is about, you know, optimizing, improving, maintaining, et cetera, the LAMP facility. And so, any capital will be covered within that envelope, so you don't need to be putting in additional capital into your plan. The way that... I mean, none of it is sort of like, tomorrow urgent. It just is work that needs to be done, and we have the opportunity now to be able to schedule accordingly.
Once again, because the market is muted, let's say, that's a nice word, we certainly have the opportunity to make sure that we plan in a way that is aligned with the market, rather than just pumping out as much NdPr as we possibly can.
Oh, okay. Thank you. My second question is around the, the sulfuric acid. Just try to understand the acid usage intensity, like, if, you know, for 1 ton of concentrate processed, will the consumption be around 1.5-2 tons of acid? Is that the right way to think about how much acid you need? And also, do you have any plans to, to build your own sulfuric acid plant beyond the medium term? Thank you.
So we don't actually disclose how much acid we use. It is a significant input into the process. Do we build our own sulfuric acid plant? Very expensive. Maybe if the government was keen to gift us some money, maybe we might think about doing it. But it is certainly part of the assessment of potential options for ongoing supply, and was always part of our thinking, which is one of the reasons why we set the initial contract, you know, to get us through early stage commissioning and operation, and gave us the opportunity to really look at a variety of other solutions for that sulfuric acid requirement. So yeah, look, that's all I can tell you at this stage.
We will provide further updates as we move through this process.
Thank you, Amanda. I'll pass it down.
Thank you. Our next question comes from Paul Young of Goldman Sachs. Please go ahead.
Thanks. Morning, Amanda and team. Amanda, a few questions on the market. Pretty strong, I think, of you coming through, that you're only going to ramp up as demand in the market improves, which I think is sensible. But just a few questions around your inventory, NdPr inventory. I think you had 500 tons at the end of the March quarter. Did you continue to build inventory in the June quarter? And also, to build an inventory, that decision, was that a voluntary decision, or are you actually getting some pushback from some of your customers saying they can't take the volume?
Oh, no, no, no. We deliberately built the inventory because, I mean, we have customers, we have demand for anything that the, that we produce. Some of that is from, customers who, who are inside China. But we have a very deliberate strategy to not sell into the spot market. And, we also have a, a very deliberate, strategy to not be selling material that others may put into inventory and hold till when the price improves, you know? I mean, when we can actually afford to carry that inventory ourselves. For some of us, we can remember selling NdPr at $29 a kilo in 2016. I think that Paul and I both have this tattooed on our foreheads.
At that stage, we didn't have the option, because, you know, we were on a knife edge in terms of cash flow. Today, we have the option to choose to hold the inventory until the price improves. We did actually reduce the inventory by 200 tons during this quarter.
Okay, that's good to know. And then, Amanda, just on, you know, future offtake with expansion, you've had this question a few times. I mean, there's still quite a few emerging rare earth companies, who are stating that, you know, they believe they can sign higher fixed price contracts, you know, in the order of $80-$100 a kilo, and we know, and you stated that, you know, no one's making money at $50-$60 a kilo, and we know that nothing really works, as far as the high quality projects, unless you do have an $80 a kilo long run price.
So the question I have, though, is that, do you have the ability to actually, and the flex to actually potentially go sign fixed price contracts, high fixed price contracts with non-Japanese magnet producers, i.e., Germany, in Germany, in Korea, in the U.S.? Do you have that, do you have that ability to go and sell fixed price contracts to non-Japan, non-Japanese magnet industry?
Sure, absolutely. And, you know, I won't comment on other people's assertions, except to say that we actually run a business, not a spreadsheet. And, so we have contracts with European customers, and we have some of those which are, you, you know, I know people sort of talk about these as the new pricing, models. We have some which are fixed price, we have some which are floor-ceiling, and we have some which are, you know, sort of pegged to the published market price. We've always thought that the best way for us to be able to optimize, pricing was to have a portfolio of, of pricing, constructs, and we continue to have that today.
The only thing that I could tell you is that, we do engage with all, you know, sort of both magnet makers and magnet buyers, you know, sort of the, the large magnet buyers. I have yet to have anyone to say to me, "Oh, you know, I'd be delighted to sign a fixed price contract at $80 a kilo." I mean, I could assure you that we would have that signed, sealed, and delivered within hours. So, I think that recognizing that as the market changes over time, so too do customers' expectations, and part of the art of selling is to understand the right time to strike those relevant contracts.
There are things that I think will improve some of the buyer activity, including the most recent critical minerals regulations, which are being brought in by the E.U. I think that that does provide further opportunities for us to engage effectively in that market. But I think that anyone who thinks that we just make stuff, and then whoever feels like buying it for whatever price they feel like buying it, that we sell it to them, doesn't truly understand the level of focus and attention this gets in our business.
I think that you can see quite clearly in the results that we consistently deliver better outcomes than just the published market price would suggest, which reflects the fact that we don't just sell spot, at spot price to whoever happens to ring up that day.
Yep. Okay, thanks, Amanda. Understood. Just last one, just on the numbers, maybe bring your Gaudenz into it. Just on Kalgoorlie and the costs there, are you still capitalizing, or is it included in the AUD 131 million, on the, in CapEx or, or actually expensing within the AUD 84 million, in the quarter of OpEx?
... We are still capitalizing. We expect to reach a stage where we would meet the accounting requirement that would allow us to then move it off the capital account and into operating expenses.
Okay, great. All right. Thanks, Amanda.
Thank you.
Thank you. Our next question comes from Daniel Morgan of Barrenjoey. Please go ahead.
Hi, Amanda and team. So I understand the ramp-up of your business is subject to market conditions, which absolutely makes sense. Should I expect that production should be at about a 7,000 ton per annum run rate until the market improves? Is that about right?
So I think that's an excellent question, Daniel. You will have noted that we rarely give detailed guidance on production, and it's not my intention to do so today. Having said that, we are absolutely alert to, you know, sort of the various statements that we've made over time, particularly with respect to Lynas 2025, and we feel that it is important in this coming financial year that we demonstrate our ability to be able to produce at those sorts of rates, but we will make a choice on when we do that according to market conditions.
Okay. Should we expect quantitative-
Sorry, Daniel, I will, I won't be too cute about it. You should expect that we are not going to start, well, we have not started the year and said, "Okay, let's go for 10,500 tons this financial year." Clearly, it would not be a sensible thing for us to do with the market the way that it is at present. But we are keeping a close watching brief on inventory levels within China. There has been some destocking, and, as we see more of that occur, we will make decisions about, how we, you know, dial up or dial down our production.
Okay, that's sensible, of course. On China, what do you make of the latest China government policies on the industry there? You know, what does greater control there or consolidation there mean for your business? However you want to answer that question.
Generally speaking, when the China central government exercises more rather than less control, the market does appear to operate more functionally. And so that sort of seems at odds with an underlying belief in, you know, sort of free market activity. But there are many dynamics in the Chinese market, many more than just what the central government does. There's what state governments do. There's, you know, sort of you still have some independent producers, particularly of, you know, a lot of independent producers of magnets, you know, so you can have a variety of different dynamics, all sort of not necessarily going in the same direction.
And we saw this, you know, in 2015 and 2016 with the, you know, sort of really significant production of illegally produced, i.e., not licensed, materials. And when the government stepped in and really took control of that was when you started to see the market function more rationally. So on balance, is it a good thing for the Chinese government? Given the Chinese environment and ecosystem, we would see it as probably more likely to be positive than negative, but, you know, it's difficult to forecast what will ever happen inside China.
Suffice to say that the Chinese industry is, you know, other than as said on earlier, you know, our assessment is Northern Rare Earth and Lynas are, you know, able to continue to be profitable because of our low operating costs. And I think that there is a recognition that always has been in China, that the industry is important for China's economic success and will continue to continue to take actions to improve it.
Thank you. Just last question. Has MREC, and I mean, Kalgoorlie-sourced MREC, has that made it through the back end of the Malaysian plant as of yet, or is that still to come?
Not yet, but it's on site. It's unloaded. We're sort of working on the basis of we just have to manage how we batch it through in the first instance so that we've got the opportunity to really assess it, but we've got nothing at this stage, which makes us any more nervous than you ever are when you start a new process.
Okay. Thank you so much for your perspectives, Amanda.
Thanks, Daniel.
Thank you. Our next question comes from Dim Ariyasinghe from UBS. Please go ahead.
Thanks. Thanks, Amanda. First question from me, just on the Heavy Rare Earth announcement that you made, a while back. Is there anything you can do or say to help us quantify that, the revenue uplift, and give you some value for it? That's my first question.
Not really.
Yeah.
I try-
Can I ask a question? I know it'd be hard. Maybe I'll ask it differently. I think I know the answer, but I guess, why now? Maybe I'm missing something. I think I know the answer, but is this an option that was available to you years ago? Or is this something that you're doing now because of where the market's at, and you're just trying to optimize, I guess?
Okay. All right. So the answer on that. Look, first, first up, we will get a margin uplift from separating Dy and Tb, right? And, and, you know, it, it will, bearing in mind that they're still relatively small volumes, I don't want to, you know, sort of overstate it. But the benefit to us from being able to separate our own DyTb, is that we are able to then offer magnet makers and other higher. There are some higher value sectors, that, that utilize those materials. We are able to offer those materials, either as a package with our NdPr to magnet, magnet makers or otherwise. So it is about enhancing the product range, as well as improving the margin that we are able to generate from that material.
Bearing in mind that these days, and I know that there's lots and lots and lots of discussion about DyTb prices alongside all of the discussion about NdPr prices. But, you know, five or six or ten years ago, you typically used, about one to ten—actually, it was even higher than that previously—in high performance magnets, a ratio of about 1 to 10 HRE to NdPr, DyTb to NdPr. That's actually dropped back to about 1 to 14 these days. You know, a lot of focus from, magnet makers and magnet users on ways to continuously improve their magnet and their magnet coercivity. You know, so magnetic properties above 100 degrees.
But it remains an interesting market, and for us, the ability to generate full value from the materials within the Mount Weld ore body is, and always has been, key to our strategy. Why didn't we do it earlier? Well, for a variety of reasons. When we first looked at this, on my watch anyway, we didn't do it because we didn't have any money. Then, as we then, you know, sort of hit 2018 with some of the challenges with the license situation in Malaysia. You guys would have, you know, hung me if we'd sort of talked about making any sort of significant investment in Malaysia with that hanging over us.
We have clarity on the path forward in Malaysia. It's by far the most efficient way for us to enhance production, and so that's what we're doing. Is that the answer you sought, Dim?
Maybe I can try a little bit more. It needs to go into a cell. So if I assume a 40% discount to, with, you know, so SEG to Heavy Rare Earth, is that narrowed to 20%? I guess it's maybe too early to figure that out, but
I don't-
Yeah
... have the number off the top of my head, Dim, sorry, but I'm sure that Daniel and Gaudenz will be happy to have a bit more of a discussion with you, to give you a bit more on that, off the call.
Yep. Yep. Cool. And then maybe another question, just helping quantify. But with the sulfuric acid issue, I guess the first thing is, I don't expect there to be any issue, or do you expect any issue for sulfuric acid, or the availability impeding the ramp up? And again, rough numbers. I know it's, you know, you can't give us tons or usage, but sort of pie chart, is it 20% of your costs now? Just for us to assess how material this is to your cost base, I guess, going forward.
... Yeah, okay. So it won't impede the ramp up. While the, you know, sort of ramp down at the smelter is, you know, relatively short term, there will be plenty of sulfuric still sitting in that tank for a while afterwards. We have enough headroom to be able to manage this transition. So, you know, we're good with that. And in terms of financial effect, you know, there are. We won't know that until we've actually resolved some of the logistics. So I'm sorry, but you'll just have to be a little bit more patient on that. Kalgoorlie, I think it's, everybody knows that to operate facilities in Australia is more expensive than to operate them in Southeast Asia. And so we continue to work on ways to optimize our cost base.
And a fair bit of that is associated with logistics, and we have some good plans to continue to improve that as we move forward. We do need the Kalgoorlie facility to be more efficient, you know, in terms of costs, and it is really at the top of our list. So having got the plant working now, you know, a lot of our focus switches to improving cost competitiveness. And sulfuric will simply just be one of those elements.
Yeah. Cool. Thanks. Just one last quick question. Just on, so Daniel or the others, tried to get the best on, on the ramp up. Just, in particular with Mount Weld expansion, is that on time versus, I guess, your original guidance, or stays still a little bit behind schedule from my read, is that-
Oh, it's a little bit, but the actual project is going really well. We did have to do some additional surveys as part of environmental approvals earlier this year. Once again, it's all about the market. You know, if the market was strong, then we would, you know, put our foot back on the accelerator, you know, all the way down to the floor. But it's not necessary to do that right now, and speed always, you know, has some sort of cost associated with it. We think that the program as it stands works very well for us in terms of aligning to the market. As said, it's really important to note our current bottleneck at Mount Weld is the dewatering circuit.
The stage one of the expansion is the dewatering circuit, so it allows us to release that bottleneck. It also replaces an area where we've always had challenges in terms of safe performance, and it automates that and takes human bodies out of the operation of our filter circuits. So, you know, that will actually give us an interim step up, and that interim step up, we think, will be sufficient for this financial year, which is the reason why we are now looking to complete, you know, by the end of the financial year, rather than, you know, I think three years ago, we were originally targeting sort of the end of the calendar year. But we don't see this as being anything other than properly aligned to our general business plans.
That's great. Okay, cool. Thank you. Thanks. I'll pass it on.
Thank you. Just a moment for our next question, please. Next question we have from Milan Tomic from JP Morgan. Please go ahead.
Yeah, thanks, and morning, Amanda and team. Just a question, the reconfiguration of the Malaysian solvent extraction circuit to produce heavies, I think you mentioned that that was gonna take some NdPr oxide solvent extraction out. I'm just interested in that ratio. If I can put it another way, if you get to 1,500 tons of heavies, does that take out 1,500 tons of NdPr oxide production? Or if you could just provide some color on that ratio, that would be great.
Hi, Milan. Sorry, that is maybe a little bit misleading, the way that that's been stated, or I'll just check on how we've stated it, because the intention is not to indicate that we have any reduction. In fact, we're increasing our NdPr production rates at Lynas Malaysia. So currently, you know, the circuits are configured to produce. Sorry, up until now, the last six months, circuits were configured to produce about 7,000. We have done the work on two of our trains to take that up to about 9,000, and we will, at you know, the right time, do the additional work to take that up to 10-10.5 thousand, and potentially even 12,000 tons of NdPr.
As part of that, we put in some new circuits in our new MREC receivable area, and so that has freed up some of the circuits that were previously used for NdPr separation, and those are the ones that we're now repurposing for HRE. So the introduction of the HRE separation does not have any effect on our plans for the ramp up of NdPr capacity.
... Great. Thanks very much. And just, another one on the heavy strategy. The U.S. rare earths update from August last year, I know it indicated an operational target timeframe of FY 2026. That recent update on the Kuantan heavies strategy, I think you mentioned that you have production starting midway through calendar year 2025. Are you able to just step us through the latest thoughts on sequencing of these two projects?
Of course, we can do it much faster in Malaysia because we have a brownfield site, and, you know, as said, we're repurposing those particular circuits. It's also exclusively DyTb, and did a holmium separation. It's a more complex facility that we're talking about in the U.S. And, we are, you know, continuing to progress with all of those pre-construction activities, including, you know, sort of the design, the review. We're working with our U.S. government partners on that. In the meantime, the sooner we get the DyTb out of Malaysia, the better for everyone.
Yep, thanks. That's all for me.
Thanks.
Thank you. Just a moment for our next question. Next, we have Matt Hope from Ord Minnett. Please go ahead.
Yeah, thanks for that. Just, hark back to Malaysia and Kalgoorlie. So just, first with... Oh, sorry, Texas. Well, first with, are you still planning to send the Heavy Rare Earth residues from Malaysia to Texas? 'Cause as you noted, there's really no third-party MREC likely to be available from South America till, you know, 2028 at best. And it's just puzzling to see how you could produce 3,000-3,500 tons of heavies from Mount Weld alone without those heavy residues.
So, I'm not sure what you mean when you say the heavy residues. We produce SEG, which is H eavy Rare Earth compound in Malaysia. We do expect that-
Yeah, that's what I was referring to.
Yeah, yeah. So, we will use some of that as feedstock in the U.S. And we will, you know, the current plan is also to feed the U.S. with the mixed rare earth carbonate from Kalgoorlie. And once again, that will simply be optimized at the time, according to demand. Bearing in mind that, you know, as said, demand varies over time, and I think this is one of the things which is really important. Once again, I go back to, you know, we run a business, we don't run a production plant, and understanding what the market needs, when it needs it, and the fact that we produce, you know, materials which are used in technology applications, and that varies over time.
So we see demand for DyTb going certainly a lot, you know, a long way into the future. U.S. government sees the importance of that, which is why they're supporting the development of that plant. We are, you know, fortunate that we have heavies in our deposit, but we are very happy to complement that with heavies from other sources as they come online.
Okay, and so there's no requirement for the government to produce a certain production level, given they're funding it?
No.
Right. Okay, and the second question was just, I was wondering about whether there'd been any evolution on your plans for Kalgoorlie, about how to manage that high capacity over the longer term.
Uh.
Do you know yet whether production can be flexed downwards and remain cost competitive?
So yeah, they're good questions. At present, we're really focused on getting it to target rates. Is our initial target to get to nameplate? No. Our initial target is to get to an interim production level that we see is consistent with the market and allows us to be cost competitive. But as I indicated before, as we ramp the facility up, we now are starting to switch focus into what can we do to improve efficiencies in that facility, and ensure that it doesn't carry a cost penalty compared to the material that we take through Malaysia. It, that will take some time, but is very much, you know, sort of our focus as we get the facility operating.
All right. Thanks for that.
Thanks.
Thank you.
Okay. Well, we're just about on the hour, Maggie, so I think unless we've got anybody else in the queue, we're probably-
We have.
Okay.
We have one more, three more questions.
Oh.
Would you like to-
Sure, sure. Okay. I can't see the questions, so, yep, so that's fine.
No problem. Our next question comes from Shannon Sinha, from Morgan Stanley. Your line is open.
Hi, Amanda and team. Again, towards the end, so a lot of the questions have been answered. But, I thought I'd ask around the Mount Weld CapEx, just given that we saw the increase at Kalgoorlie CapEx last quarter, how that's running. Are you still confident in that CapEx budget?
... Yes, if we were, we would have disclosed it, Shannon. So, it’s running very well.
Okay. And, I just had another question around the hybrid renewable energy at Mount Weld. I was wondering, it's obviously good from an ESG standpoint, but is there any impact costs from that at all, or is it pretty much in line with where they are currently?
So, as part of the Mount Weld expansion, we increase our energy draw by about... I'm not gonna say the number because, but significantly, right? So, if we take that, and we indicated this in the announcement, we take that, and we assume that that is served by a diesel power plant compared to being served by the solution that we've got, the cost per kilowatt hour is significantly reduced. So compared to today's energy draw, you know, the cost is higher because today's energy draw is much lower.
But, you know, bear in mind, the Mount Weld expansion processes four times as much material, and we also have quite energy hungry fine grinding circuit, which allows us to reprocess some of the material which we've currently got in the tailings, and it allows us to improve recoveries. And so this is a very cost-effective solution for that increased power requirement in the future.
Great. Thanks for that. That's all from me.
Thanks, Shannon.
Thank you. Just a moment for our next question, please. Next, we have David Deckelbaum from TD Cowen. Your line is now open.
Thanks, Amanda and team, for hanging out a little while longer. I wanted to ask just one more on the Heavy Rare Earths. Should we view this as a strategic attempt to perhaps open more commercial avenues for your business with new customers and new areas? Or is this perhaps just taking more control over your product over time so that you would have future optionality? I'm trying to get a sense of how imminent maybe this commercial opportunity would be.
There are new sectors that we don't participate in at present because we don't have separated DyTb. And then, of course, there are our existing customers, which is in the making of magnets. And so, some of the new sectors, which includes, you know, in the electronics market, are very attractive to us, and it gives us an opportunity to expand into those areas. And then, of course, as I said, for our existing magnet-buying customers, being able to offer them, you know, sort of a package of NdPr and DyTb, is potentially of significant value as well.
Appreciate that. Just a little bit on the details. Just curious with the grant money that was received this quarter, was that specific to Australian projects from the Australian government, or is that how you're accounting for some of the DoD support for Seadrift build-out?
I will get Gaudenz to confirm this, but that is a combination of grant monies received from both the Australian and the U.S. government. Is that correct, Gaudenz?
It's purely a Australian project.
Okay.
Thank you.
Thank you. There are no other questions on my side. I will now pass back to Lynas.
Okay. Well, once again, thank you, all. I would just reiterate that, you know, the market is not as hot as it was a couple of years ago. But we remain completely aligned with a medium- and long-term view that it will continue to grow. And therefore, we continue to develop our business to be able to meet that future growth, whilst really focusing on ensuring that we are profitable, even at the lower price and more muted demand levels that we're seeing today. So again, thank you for your interest in our business, and I'll look forward to speaking with you again, in a month or so when we release our annual results. Thanks. Bye.
This concludes today's conference call. Thank you for participating. You may now disconnect.