On your telephone. You will then hear an automated message advising you, 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 turn over the conference over to your speaker today, Lynas. Please go ahead.
Good morning and welcome to the Lynas Rare Earths Investor briefing for the first half of the FY 2023. Today's briefing will be presented by Amanda Lacaze, CEO and Managing Director. Joining Amanda will be Gaudenz Sturzenegger, CFO, Pol Le Roux, COO, and Daniel Havas, VP of Strategy and Investor Relations. I'll now hand over to Amanda. Please go ahead, Amanda.
Thanks, Jen. Good morning, everybody. It's good to have an opportunity to speak with you all again. I'm pleased to present what I would call a solid result for the first six months of this financial year and to take this opportunity to say a few words on performance. Knowing you only want to know about the Malaysian license and Kalgoorlie, but, you know, the business is so much more than just two issues. If it was only two issues, then all of our lives would be a whole lot easier. I'm just trying to move along here. On the presentation, and it doesn't seem to want me. There we go. Of course, I would like to take this opportunity to acknowledge the traditional owners of the land on which we live, work, and meet across Australia.
We acknowledge and value our Aboriginal employees and are very pleased that we continue to increase the number of Aboriginal and Torres Strait Islander employees in our business, particularly in Kalgoorlie. Pay our respects to their elders, past and present. Just looking really at the financial highlights of this year, which I'm sure you've all looked at. The revenue, our revenue remains very exposed to benchmark pricing, even though, and I think for those who've been in the stock for some time, you know that everything we sell, we sell on a contract basis to a customer. Most of those contracts reference in some way benchmark pricing. Not all, but most. We are still very exposed to that.
After the very high levels that we saw in the second half of last financial year, we dropped back to more stable pricing in the range of $85-$100 a kilo for NdPr. Of course, pricing trends and cost trends are not always aligned because the factors that influence the price of particularly NdPr are not necessarily the same factors that affect the input costs in our business. Our costs did go up through the first six months of this year, and some of those were completely unavoidable. For example, the sulfuric acid price, which more than doubled during that period. Some of them were cost increases that we elected to take. For example, some of the non-capitalized costs associated with growth.
Things like our, you know, the cost associated with building the stockpile of both concentrate and direct shipping ore at Mt Weld ahead of the Kalgoorlie startup. The team is very focused on identifying them. It's one thing to just say, "Well, the cost has gone up," and everybody all over the world is saying the cost has gone up. What we do need to do is to find efficiencies and improvements in our business to be able to mitigate some of those cost increases. We have a full team working on, you know, properly analyzing opportunities for continuing to improve costs. Always finding a way to do it better. Finding more efficient ways to do it is the best way that we can mitigate increases in costs from the external environment.
As you will see on the next page, our CapEx spend really accelerated during this first 6 months of the year. Despite that, we've had a big accumulation in cash, and that really makes us all feel very comfortable as we maintain our balance sheet strength to support our growth program. Once again, those of you who've been in, you know, investors in our company for some time would recall that when we originally conceived the Kalgoorlie project, we thought we would be able to fund it from cash flow. As it turns out, that is actually very much the case that, you know, we are sustaining a very high cash balance despite the fact that we have significant cash out as part of our capital program.
In terms of production, if you look at this, clearly lots of disclosure on water issues already up until now. I don't propose to go over all of those, except to say that, you know, the plant has recovered from that. We had a strong finish to the first 6 months of the year and saw that, you know, sort of status in good stead as we move through January. Just looking at some of our ESG highlights, I think, it's really important to say that in our business, ESG is not just an acronym, not just something that we think about so that proxy advisors don't give us grief, when it comes to our annual report. ESG is really important. We all have to live on this planet, so the way that we interact with our environment is critical.
Even as we look at things like our Mt Weld expansion, we were really delighted in November to welcome the West Australian EPA chair and members of his team to Mt Weld, so they could see the scope of our proposed expansion. It is still important, even though as far as the eye can see, you really can't see any other human intervention in the landscape. If we take ESG seriously, we still have to think about how do we minimize our impact on that environment and how do we minimize our footprint. In the first six months of the year, we continued with a very good safety record. It can always be better, and we spend a lot of time with our people working on that.
We received the AELB audit of our operations in Malaysia, which once again were the highest possible rating. We maintained our ISO certifications. In terms of our communities, we hold a very strong ethos within our company that we cannot prosper if our communities don't prosper. We continued with a range of community engagement programs in each of our three locations, including now a local giving program which has been launched in WA, which sees us engaged in the Kalgoorlie area with certain contributions for various community groups. Of course, climate is an essential part of our environmental initiatives. We've issued the tender for our gas hybrid power station at Mt Weld.
We expect that we will get a transition to gas from diesel before we have the finalization of all elements of the renewables power supply in that location. I'm quite excited about that, as I think everyone else in the company is because, you know, transitioning from diesel to gas is going to once again improve the effect that we have on our surrounding environment. We've signed a contract for a pilot solar installation at Lynas Malaysia. We've not finished building Kalgoorlie yet, but we're already working on how do we revegetate areas that we've had to clear as part of the construction program. We want more vegetation around that facility and we're doing the work now to have the seedlings available, so once we complete construction, we can start that revegetation program.
As I said, as we think about our business, the price goes up and the price goes down, but actually the fundamentals remain positive. This just gives you a sense of the, you know, not just sustained, but increasing focus on rare earths by governments around the world. The desire to find better mechanisms to facilitate the growth of the industry. For us at Lynas and our shareholders, our business will be better and stronger, you know, so long as the outside China supply chain and market continues to grow. We see this focus and attention as being critically important for the health of our business in the longer term.
Actually, I'm just looking at this and I'm sort of amusing myself because we didn't shade in China, which, and rare earths continue to have the attention of the Chinese government as well. I think what we've seen over the past six months, and this has been highlighted I think in many other results presentations, the Chinese economy can be a bit variable. We see a little bit of that reflected in pricing. We continue to see the fundamental factors driving growth of this market remain really robust. As we look at that, the global energy transition, it needs a lot of metals which are going to mostly come out of the ground. The demand for rare earths is going to continue.
We've just got some little examples there so that those of you who create models can think about how do you know, factor these into your demand modeling. Suffice to say that we think there's plenty of demand to keep us going and to keep our operations, our enlarged operations, operating very successfully. Just a few words on Malaysia. The first thing I would like to say is that the Malaysian team remains absolutely on point despite all of the issues. You know, we look at the politics and certainly that causes our people to, you know, sort of worry for themselves, but also worry for Malaysia. I'll come back to that.
The team remains focused and resilient, managing, as I said, not just current operations, but also the installation of facilities which mean that we will be able to receive the mixed rare earth carbonate from our Kalgoorlie facility. As part of that program, we've taken the opportunity to also include certain operational and HSE improvements in that project. For the first time, we're giving you a few photos associated with that. You know, the polishing filter press, the decanter, sulfate removal pumps. All of these things are going to ensure that we are able to continue to operate. Sorry, I seem to have had control of this taken away from me. Whoever is controlling the presentation, let's move on. You can see some of the photos. It's not a small task.
Even in Malaysia, it's by no means the size of the Kalgoorlie task, but getting this right and ensuring that the flow sheet works is clearly a critical part of our ongoing activities. Let me then talk to, you know, this issue around the Malaysian license. As said, the commitment and the confidence of our team has never wavered. We are not seeing an increase in turnover. That's important. It means that we keep our skills within the business. I was very excited and proud actually of a couple of our young engineers when we had some visitors to the plant a couple of weeks ago. One of them, I'll call him by name, Ernie, who's been with us since he was a graduate engineer, graduated from the Oil and Gas University in Malaysia.
He chose to come and work for us because these are the materials of the future. As he made this impassioned plea, he talked about the fact that Malaysia cannot rely on oil and gas forever. Jan Yasmin, who's been with us for about six years, joined us as an intern and today is one of our senior process engineers. She is a great example of the sort of skills and capabilities that we're growing in the company. She's worked across solvent extraction and product finishing and is now in CNL and will be coming out to Australia in April to assist as we bring feed on and commence the ramp up. Of course, the key message that we seek to give to the Malaysian government is that there is no trade-off in jobs and safety here.
We have the economic activities, and we run a safe and low-risk operation. Some of you would have seen last Thursday that our Malaysian team, contractors and local communities all gathered together to send a message to the government of the importance of continuing to operate the Lynas Malaysia facility in its entirety. Once again, I was really delighted and proud to see the commitment not just from our own people, but particularly also from our communities. Dhanesh Shah, one of the senior leaders in our local Balok community, I think, put it really well, and he said, "You know, 30 years ago, this was a little fishing village.
Now it's a thriving township, and that is because of industry and industries like Lynas." He did suggest that those who didn't live in the area actually came and visited and stopped opining on what's going on in the area if they haven't ever actually visited, which I thought was interesting. I know that all of you want to know, can we fix this situation where the license has been renewed with the 4 conditions intact? Hopefully yes, but I cannot tell you that that will be the case. You know, one of the reasons why we exist as management is to manage risk, certainly understanding what's the downside and upside risk associated with this decision is a key part of our lives.
As we've indicated in the disclosures that we've made, Malaysia provides a number of avenues for appeal, both administrative and legal. We still have plenty of time to progress those appeals. We've lodged the first two administrative appeals at this stage, and sought urgent response to those appeals. We still have time to ensure that we do properly educate the new government on the opportunities which are in front of Malaysia if Lynas is retained in its entirety. That includes processing of upstream feedstock materials which Malaysia has both ionic clay deposits, but also monazite which is sitting in previously mined tin tailings or mineral sands and otherwise. These are, you know, sort of important feedstock options alongside hard rock mining as we do in Mt Weld. Also the really significant economic opportunity associated with downstream development.
We've signed an MoU with one of the major potential motor manufacturers in Malaysia for supply of material. You know, even on the most conservative of estimates, there's probably at least 15,000 downstream jobs which can be associated with development of a magnet plant and motor making facilities. The situation today is not our most desirable situation, but once again, we have time between now and the 30th of June to continue our engagement process with the government to ensure that the government really does understand that these operations are run safely and the economic opportunity is significant. Just moving on to Mt Weld. It's really exciting. I was there a couple of weeks ago.
You know, compared to when I first visited in 2014, you know, we are still a small site by comparison to many of the other mine sites in Western Australia, but we are so much more than we were then. We've got the new earthworks commencing, which is pretty exciting. I think the other thing that probably I was most excited about was, some additional water exploration that we're doing as we seek to continue to grow our production at Mt Weld. We certainly need more water. Those of you, who've been, you know, following us would know that a large part of the Mt Weld exploration project is water treatment facilities continuing to improve the way we use what is maybe in some ways an even more precious resource than the rare earths in the ground themselves.
As we've indicated, we're creating stockpiles for Kalgoorlie. We have two stockpiles. We have one which is concentrate and the other one which is direct shipping ore. We've been mining a particularly rich part of the deposit over the past, you know, sort of year or so. We have a direct shipping ore with stockpile with rare earths between about 28 and I think up to about 32% within that stockpile. Kalgoorlie, which is the other one and everybody always wants to talk to me about, of course, and wants me to, you know, sort of bet my firstborn on when it's going to be done. There is inherent uncertainty in any schedule. Suffice to say that we have a cost continuous optimization of the project schedule.
Those items that we identified as critical path items four weeks ago are no longer critical path items because we identified solutions for them. And as we do that, the critical path moves around. We are 100% focused on delivering those items that must be in place for a successful start-up. And there are others that can wait. You know, I don't really mind if people's offices are in dongas rather than in a beautifully appointed accommodation building, say, for example. And we are progressing very quickly with the knowledge exchange between Malaysia and Kalgoorlie, which should facilitate a better outcome in terms of the start-up.
We've modeled a series of scenarios, you know, ranging from early feed on rapid start-up to late feed on slow start-up, and we have accommodated that within our business planning. Once again, you know, understanding risk and mitigating it is the important thing. Of course, the other most important thing is understanding our customers' needs and making sure we meet those needs because you can deal with anything so long as you have customers, 'cause that's actually where the money comes from. Some really quite, I think, impressive photos of the work which has been done, but you can see why we would be looking at, you know, sort of our revegetation program already. In the U.S., work continues.
I'm sort of always conscious that these seem to be fairly bold statements which probably don't reflect the amount of effort that's involved in the U.S. project team. Certainly, you know, from moving from where we were with sort of design and estimates to really having this project ready to go has, you know, required a lot of focus and effort. The engineering design is complete. We've got detailed costings in place. We've identified a site in the Gulf. We're finalizing some of the activities associated with acquiring that site. Finally, really just finishing up, you know, the commitment to ESG remains. Our commitment to our people and our communities, our commitment to the environment and our pride in the fact that this has been recognized by various different awards.
We remain in an exciting time. We are growing to meet the accelerated market demand. It would be, you know, wrong to say that we are not all working very hard. As I tell my children, hard work is its own reward. I expect that we will all be rewarded as a result of the heavy lifting that we're doing at present. With that, I am happy to take any questions.
Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to 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 while we compile a Q&A roster. Our first question comes from the line of Al Harvey of JPMorgan. Please proceed with your question.
Good morning, Amanda. Just guess, want to get my head around the project sequencing a bit more. I noticed in the report you've said that Kuantan does appear on track to receive the mixed rare earth carbonate from Kalgoorlie, but at this stage, Kalgoorlie is a target before that July 2023 deadline. I suppose I'm just trying to get a sense of your confidence in reaching that target. I know you said you've modeled up a range of scenarios. I guess a follow-on question from that would be, you know, what are the options if there is a delay to commissioning at Kalgoorlie and your ability to meet those contract obligations and customer needs that you mentioned?
The simple answer to this is that we understand our customers' demand profile, and we are scheduling production and sales and inventory to be able to ensure that we sustain supply to our key customers and therefore we don't disrupt their production programs. In terms of asking me about my confidence level, I always think that, you know, the best indicator of future behavior is past performance. We have proven ourselves to be competent at bringing on new facilities. Now they've not been at the size of Kalgoorlie previously when we think about the Lynas next program, say for example, in Malaysia. This is a substantial transition that we're talking about, and we're talking about new processes in both jurisdictions.
It would be foolish of us to not have a view of what might happen if they are slower to stabilize than, you know, sort of our target plan. We have confidence. We have, you know, sort of, our limits on this. We understood how long it took us to start up and get the Malaysian plant stable a decade ago. We've learned an awful lot. Kalgoorlie is a stage, I would say, you know, sort of cracking and leaching 4.0. I think we have reasonable data on which to create our various models. I won't tell you a percentage confidence other than to say I think we have a reasonable track record.
All right. Thanks for that, Amanda. Just a second one. I'm just thinking about the reviews and appeals for cracking and leaching in Malaysia. Are you able to kinda outline, you know, expected time frames for that or at least, you know, kinda like a range, I guess, to get us thinking about when that could possibly come back on? I guess, you know, what the support in the community for the project is. Obviously, you know, it's politically sensitive, particularly ahead of state elections coming up later in the year.
So, I guess, to take the second part of the question first, Al, we had well over 1,000 people at a rally on Thursday in Kuantan. That evening, there was, in one of the... I think it was in Selangor. There was, one of the chambers who said, "We'll have an information evening." This was basically run by the anti-Lynas groups. I think they had, about 15, you know. That gives you a sense. And the certain amount of the anti-Lynas sentiment is a bit like muscle memory. You know, it was such a big issue in 2013. But as our local communities will tell you, that was when they didn't know what it was going to be like.
They didn't know how we were going to run the business. They didn't know whether we were going to be safe or not safe. You know, there was all of the angst about, is this going to make our fish glow in the dark? All of that sort of stuff, because, you know, you had silly politicians, making YouTube videos sort of talking about those sorts of things. I think, you know, 10 years on, our community see us to be a serious business that takes our duties and responsibilities to our local community and to the environment seriously. Inside the company, as I always say to our people, we need to always do the right thing, and we need to always comply with the regulations.
If we do that, ultimately decisions do have to be made fairly, equitably and based on evidence, and the evidence is on our side. How long will it take? Well, I wouldn't want to predict how long Australian regulators take to do anything, much less, you know, sort of not in my own country. I think it has the attention of government and it has the attention of the regulators.
No worries, Amanda. I'll queue up again. Thanks.
Thanks.
One moment for our next question. Our next question comes from the line of Paul Young of Goldman Sachs. Please proceed with your question.
Thanks. Morning, Amanda. Some further questions on the license and your contingency plan. You're right, is the focus of the call. I mean, I think the key is just stepping back. I mean, we know that, you know, Mt Weld has a very long life, and we're all most likely believers in the fundamentals of NdPr, but just really want to try and understand the ramp up near term, particularly in the next 12 months. Just further to, I guess, if the appeal isn't successful, I'm really trying to understand what the contingency plan is. If I look at Kalgoorlie, and if you're producing some carbonate in June, you probably won't have, you know, a sizable amount of carbonate production at LAMP until September, October.
There's obviously going to be a delay there on building up that stockpile. I'm trying to get a sense of how do you actually avoid partly curtailing LAMP in the December half? Have you built up, you know, a carbonate stockpile in LAMP? We're looking at the mass balance. Just trying to see how you actually avoid actually curtailing LAMP.
In a worst case scenario, finished goods production at the LAMP will reduce. I mean, that's the arithmetic. As I said, the important thing is to identify how do we manage our inventory to meet our customers' needs. That we have a plan to do.
Okay. Thanks. In that case, you know, the downside scenario is a partial curtailment of LAMP, deliver, yeah, deliver to contracts to those important customers and just really just get through the next six months or so while Kalgoorlie ramps up. Would that be fair?
Yeah, if it takes that long. I mean, you know...
Okay.
As everyone who's followed the stock for a while will know, there's any number of things that can affect production. You know, at one stage, beginning of COVID, we were shut down for 42 days. You know, the first quarter of this financial year, there was the shutdown following the huge, you know, sort of water outage. There are things that can disrupt production. If we manage this, you know, we've learned how to manage those things. We will manage this transition for the benefit of our customers once again.
Yeah. Okay. No, that's clear, Amanda. I mean, the next question I have is, again, back on the mass balance and just trying to understand the next 12 months, looking at Kalgoorlie, it's, I mean, that kiln's rated at 160,000 tonnes per annum of concentrate. Sorry to throw numbers at you know, the cracking and leaching in Malaysia is rated at 60. It's obviously Kalgoorlie cracking and leaching is designed for the full expansion of 12,000 tonnes, yet Mt Weld only starts ramping up in the middle of 2024. There's a 12-month period where the kiln in Kalgoorlie will be running well below utilization. Just trying to understand what the...
How you'll manage that plant, you know, running, you know, batch treating or stopping and starting it and the impact on cost? Just trying to understand the operational sort of approach to Kalgoorlie in the next 12 months, you know, while you're waiting for Mt Weld to ramp up.
Some of those numbers aren't quite right, Paul. Yeah, we're going to have the facility to be able to continue to grow, but on startup, Kalgoorlie won't run at 12,000 tonnes, and we certainly won't be batching. It won't like that at all, you know? If we find ourselves in the happy position, which is, remains our objective of running two cracking facilities, then we will be building inventory of MREC, you know, as we continue to process concentrate in Malaysia. I don't think that we're going to have an issue with Kalgoorlie running way ahead of the Mt Weld expansion. Even with the Mt Weld expansion, we're timing that so that we release current bottlenecks.
It won't just be Mt Weld works at 1 level and then the next day it jumps up and it works at the next level. The way that we're doing it currently, you know, the dewatering and filtration circuit is bottleneck in Mt Weld, so that's the first thing that we'll be putting in place. We'll start to get some incremental improvements in throughput at Mt Weld as well, which will match with, we believe, the ramp up in Kalgoorlie. We think we're able to align these things pretty well. The big thing being that we do need that next big step up in cracking and leaching capability to align with the 12,000 tonnes that'll be coming from Mt Weld. I think that, you know, there remain other options for us to look at alternate feedstocks.
We just wish that there would be some others that would actually get projects online to deliver some of the feedstock that would be useful for us in either jurisdiction.
Okay. Thanks. That's really helpful, Amanda. Appreciate it.
Thanks.
One moment for our next question. Our next question comes from the line of Daniel Morgan of Barrenjoey. Please proceed with your question.
Hi, Amanda and team. On the appeal avenue, does this allow for you to continue cracking and leaching theoretically beyond the first of July if the appeal is still ongoing or not? Thank you.
Thanks, Daniel. We don't know the answer to that. As I said, there's a lot of time between now and the 30th of June. There are avenues for us to seek relief in particular ways, including, you know, sort of seeking an injunction to continue to operate as consideration as the appeal continues. We'll progress that depending upon what the responses are to each stage. We have, and have had for some time, you know, the timetable and the escalation of various different appeals. The grounds for the appeals are all developed already. We would hope that it can be dealt with, without needing to do that. It may be that we do require some sort of extension as the appeal process continues. Hopefully, it will be resolved before then.
Thank you. In your release, you talk about building inventory at various parts of your process. Just wondering, technically, can you run cracking and leaching in Malaysia above what the finishing circuits in at LAMP need? Is it possible to build an inventory of, you know, sort of an intermediate cracked and leached product? Is the nature of the product that it degrades in the atmosphere or something and you can't store it? I'm just thinking, is it possible to run cracking and leaching really hard through the 30 June and have an inventory of product that you could continue to finish at Malaysia? Thank you.
Yeah, yeah, sure. Our people are doing absolutely everything they can to do that. In terms of work in progress through the plant, yes, we can build some work in progress inventory. As fast as cracking and leaching goes to increase their throughput, then SX and PF lifts theirs as well. Yes, we do have big tanks that take the leached material out of CNL. We also then have a second set of big storage tanks in front of SX5. We will make sure that we have those tanks as full as we possibly can. You know, I'm sort of quite proud of the fact that when we rate CNL up, SX rates up and PF rates up alongside it. We will have those tanks full.
They're not months and months and months of inventory. You know, they're just weeks.
How quickly do you plan to run the plant for the remainder of this fiscal year through to the deadline, given that, I guess, your annual processing limits, which have been a handicap in the past, you know, are somewhat redundant now? Do you run flat out through to the middle of the year? Do you have, you know, work in process or concentrate at LAMP in order to do that? Thank you.
Despite what it might look like, we always run flat out. We always go as hard as we possibly can. I'm a bit simple on these things. You know, a day's production that you don't have today is a day that's lost. A sale not made today is a sale that's lost. We're absolutely running flat out. And, you know, as I said, we're looking to build inventory, and that goes right back to the stockpiles at Mt Weld. And if it all ends up as finished goods inventory, then that's fine too. If, you know, we've moved it through and we've produced it at full speed in all parts of the plant in Malaysia. Yeah, we're running full on. Well, we don't have any major maintenance at the kilns.
That's all been done in, you know, sort of last calendar year. We will have to have some quick cleaning and things, and we'll have to have some short shutdowns as we tie in the new MREC capability. Other than that, yeah, we're running full speed.
Last question, sorry if I may. Would you consider selling concentrate or doing some sort of a TOL treatment deal in the back half of this calendar year if, you know, business is, you know, you don't have Kalgoorlie running and, you know, to avoid a production gap? Like, would you sell concentrate into China or elsewhere on TOL treat? Thank you.
There's nowhere else to sell it to other than to a Chinese processor. No, we don't need to do that.
Thank you, Amanda.
Thanks, Daniel.
One moment for our next question. Our next question comes from the line of Levi Spry of UBS. Please proceed with your question.
Yeah, good day. Thanks for the call. Might come back to the volume question later on for a minute, but just on price, I guess. What are your expectations around the upcoming China quota?
You know what? Pol's on the call. I might let Pol have a chat about this, but I'm going to set him up with the fact that whatever our forecast on it is on price, it's always wrong. And the really cool thing is that there's some of us who have a bet over a bottle of red wine on what the price is going to be, and someone always loses, so we always have red wine. But why don't I pass over to Pol to actually give you a bit more context on that.
Hello. Can you hear me?
Yes.
Yep.
Yes?
Yes.
Okay, thanks. I love red wine, I don't have a crystal ball with me. What I can comment on is that we are still, I mean, think a bit, two years back, NdPr is at $85 CIF China. 2 years ago, we would never imagine it's $85. Terbium is $1,200 and dysprosium is $300. First point is that the prices are pretty high compared to the last 20 years, with the exception of probably 6 months in 2022. Second, it's true that it went a bit down after the Lunar New Year because the demand did not increase as expected in China right after the Lunar New Year, the door is still open. You know that the production quotas will be announced sometime.
No one knows. Uncertainty is never very good. I mean, for me, price are not of a concern. They are pretty high. The expectations are that they would stay stable over the next for the next quarters. In an environment, again, where the economy is respeaking and the demand in China specifically is not very high. Having this kind of price with the current situation in China is a very positive news. I hope I will drink wine again next quarter.
Okay. Thanks, Pol. Maybe just coming back to the volume question, FY 2024 production levels. When you talk to customer demand profile, I imagine it's up 5%-10%. Just pushing on Dan's question there, what third-party pathways are open to you to keep your production flat to slightly higher when Kalgoorlie can take some extra time to ramp up?
Sorry, Levi. I said we would not be selling concentrate to anyone else for processing. It's not part of our planning.
Okay. Thank you.
Same question? Yeah. Okay.
One moment for our next question. Our next question comes from the line of Reg Spencer of Canaccord. Please proceed with your question.
Thanks, Amanda. I, some reason the system didn't record me putting my hand down. All the other, my questions had actually been answered by some of the other guys. Sorry for wasting everyone's time. I'll pass it back to the moderator. Thanks.
Okay. Thanks, Reg.
Our next question comes from the line of Regan Burrows of Bell Potter. Please proceed with your question.
Thank you. Hi, Amanda and team, and congratulations on the results. Just a couple of questions from me. First, sort of changing tax to the, to the questions answered before. Just on the tax side, obviously, you recorded AUD 20 million in tax expense this half. Understand you're sort of still under the Pioneer Status in Malaysia, perhaps you could just sort of elaborate on how we should sort of view this going forward. I know that's sort of like a 12% effective tax rate, and I'm sure there's some transfer pricing going on in the background, just anything we can sort of get out of that if possible?
Okay. My colleague sitting on my left is just going to shimmy on in to screen, and that's Gaudenz, our CFO, and he's going to talk to you about tax.
Yes. Hello. Good morning. On tax, I think the overall situation hasn't really changed. I think regularly we do get this questions. Malaysia still has the Pioneer Status, which is running until early 2026. That's one element. The other element is obviously the Australian tax situation and there in FY or related to FY 2022, we basically used up the tax losses carry forward. I think there's a small tax, actual tax payment coming through related to FY 2022. Going forward, I think the big question here, obviously, is the commissioning of the Kalgoorlie facility.
If that's coming through as planned, we will have a pretty big tax shield going forward. I hope that answers your question.
Yes, it does. Thank you. Perhaps just going back to, I guess the stock following questions. You sort of elaborated on that you're going to be sort of keeping inventory at various stages along the, along the way. Are you sort of anticipating any, I guess, divergence between production and sales, over this next six months? Is it mainly going to be in those precursor products? I know it's sort of been partly addressed previously, but.
Yeah. Look, that's a decision that we're going to have to make as we move through the next four months, whether there is a divergence between production and sales. You know, as I think most of you would know, we've always been in the happy position and continue to be today of being able to sell everything that we produce. Choosing how we manage our finished goods inventory if we are not successful with the appeal, which, you know, by the way, I still think we have strong grounds for appeal and I remain very optimistic on that basis. We may choose to have a divergence between production and sales. We will see.
We will make that decision closer to the date when we have more information on the likely position going forward.
Certainly. Thank you. Just perhaps one more following on from that. You mentioned previously that obviously there's quite a substantial economic contribution to the Malaysian Government of your operating LAMP. Just curious, if there is a closure of cracking and leaching, are you sort of expecting to reduce headcount because of that? Just sort of curious as to that. I guess given you're still under the tax Pioneer Status, does Malaysian Government really lose anything if you were to sort of close cracking and leaching?
Sure. I think everybody understands that international economic conditions are problematic for many areas at present. As Irma said so very clearly, Malaysia can't rely on oil and gas forever and Malaysia has a, you know, front foot position as far as new economy is concerned because the only operating rare earths processing, you know, separation plant in the world outside of China is sitting in Malaysia. The opportunity for Malaysia to develop both upstream and downstream is really substantive. Just with Lynas Malaysia, I was disappointed to hear the minister say, "Oh, there'll be a few jobs lost." It's hundreds of jobs potentially, which is both in the Lynas facility, the asset supplier who built their plant to supply Lynas, the jobs in the community.
You know, we have big contracts with local engineering firms and, you know, the scaffolders. The sort of there's thousands of direct and indirect jobs associated with this. It will be a serious issue within the Kuantan economy and the Pahang state economy. We spend well over 700 million ringgit a year in Malaysia and probably lose about 1/3 of that. Malaysia will lose about 1/3 of that. We are a significant economic contributor to Malaysia today. If Malaysia chooses, we provide a foundation for economic growth, both upstream and downstream. That really is the message that we're taking to government at a time when it does matter that people have jobs and they have well-paid jobs.
You know, our people earn about 4x the average salary in Kuantan, and that's not because we overpay, it's because they are skilled roles. Our message is you don't have to choose between economic growth and safety. The safety case is proven, has been proven for many years. Now just simply take advantage of the economic value which is offered to the country by Lynas.
Great. Thank you for that. I'll leave it there.
One moment for our next question. Our next question comes from the line of David Deckelbaum of Cowen. Please proceed with your question.
Thanks, Amanda and team, for taking my questions. Good morning to you.
Hi, David.
Hello. I wanted to just ask a couple more questions about the elephant in the room. I guess, you know, in the, in the published materials that you've talked about, you know, building inventory at all stages to assist in meeting customer requirements during a transition period. It sounds like that's going to be a balance of building inventory versus production during this period of time. In addition to that, I think there was some news that came out of Malaysia that suggested you could perhaps continue the crack and leach if there was a contingency that you would remove the post-crack and leached residue immediately. I know, you know, this came up about a decade ago. It wasn't deemed feasible at the time.
I suppose if that was a, if that was the path forward as a bridge until Kal was fully ramped, is that even possible, just given concentrations of, you know, thorium and uranium in the residue piles post-cracking and leaching?
We've investigated this previously. No, we don't believe that it's feasible, and it is not actually about the radioactivity. The residue from cracking and leaching has radioactivity which is analogous to the level in a phosphate fertilizer. Phosphate fertilizer gets shipped all over the world without any problems. It is worth noting that the material that we ship from Mt Weld to Malaysia does not have to be signposted as radioactive until it arrives in Kuantan, simply because that's a decision that the Malaysian regulator has taken. The shipment of residues out of the country actually has nothing to do with the radiation safety case. The residue is about 45% water. As everyone would know, that's quite a difficult sort of material to ship.
The fundamental thing is that international convention on this is crystal clear. The international convention is that the country which gets the economic benefit of processing also manages the residue. Just like Malaysia does for other imported materials which produce radioactive or other types of industrial residues. It is not, in our view, an environmentally responsible thing to move these and use all the diesel that will be used in the movement. It is highly problematic, you know, how you would move something with 45% water. Doesn't mean that we won't look at it again, but we have looked at it extensively previously, and it has not been a feasible option.
Appreciate all the details on that, Amanda. Sounds like a lot of ESG circularity. My second question is really just on when you take a step back, obviously this was the original expectation of the licensing agreement, and obviously Kal was being constructed to satisfy those conditions. From a very high-level view, I guess, how much of a timing mismatch is there at this point, versus your original plan of when you would like to have Kal fully ramped?
If we take a really big step back, the idea that we would have to shut the cracking and leaching facility in Malaysia was a confection of the minister who was in charge of this regulatory authority in 2019 and early 2020. We had four operating licenses issued prior to that date, none of which included the four clauses which we are appealing at this stage. The proposal that this is some sort of just continuity in terms of regulation is misleading. When we look at this, the regulator has always had a very clear view of how this material can be managed safely. We have always complied with the regulator's requirements.
When we first announced Kalgoorlie, yes, it was pure growth. Then we had the conditions which were applied in March 2020. The timing of those had no direct relevance to any analysis of how long it would take to stand up a facility of this size. Once they came in, we had to revisit and significantly upscale the Kalgoorlie facility from what it had originally been planned at when we were looking at it as growth capital. Our very original plan on growth capital, we were looking for it to be operational in 2025. Clearly, we've brought that forward.
Thanks, Amanda. Just the last one on me is that you can confirm that the view of getting the 12,000 tonnes a year of NdPr oxide sales does not rely on the ability to crack and leach in Malaysia.
We will have to continue to operate Kalgoorlie if we can't run our cracking and leaching facility in Malaysia.
Got it. That would just be you'd hit the same volume targets, but perhaps at higher cost.
Yeah. Well, we'll find ways to continuously optimize. The probably, almost under any scenario, producing anywhere outside of Southeast Asia will bring additional costs.
Thanks, Amanda and team. Talk to you guys soon.
Thanks, David.
One moment for our next question.
Just checking, do we have many left in the queue? We've just gone past the hour.
Yep. There are two more. The next question comes from Al Harvey of JPMorgan. Please proceed with your question.
Yeah. Thanks for the follow-up, Amanda. I guess you pretty conclusively ruled out third-party tolling of your concentrates. I think you kind of alluded to the fact that there's not lots of material out there. Is there any MREC out there that could feed Kuantan? I guess more broadly, just thinking, you've outlined demand on slide eight, but what are your broader views on supply? Do you see a structural deficit near and long term? Are there enough projects out there to balance that growing demand?
There is no MREC market. There is no one selling MREC today. You know, life might be a bit easier if there were, but there isn't. Would we think that some of the projects which currently are scoped to produce separated materials might be better off focusing on at least moving through those first two stages and producing an MREC would be a good idea. We continue to offer that to some of the junior projects that we would be happy to agree, you know, sort of offtake arrangements because we will have the opportunity to process downstream in Malaysia and also the U.S. facility when it comes online. Are there enough projects? Well, there's enough projects. Are there enough projects that have some reasonable chance of success? Maybe a little more problematic.
It's, you know, I've said this many times. It's not for the faint-hearted and it's not like this is readily accessible technology. Like, if you want to, you know, manufacture ammonium nitrate, you know, and you can buy your equipment and basically your instruction manual pretty much off the shelf. This is much more complex, and every ore body offers its own challenges. There are enough projects. Are enough of them got really high success prospects? I think that we'll have to watch that as the market develops. Pol, I'm not sure if you wanted to add anything to that.
Well, only one point. MREC is produced in China, but it's clearly prohibited to export MREC from China. There is no MREC accessible from China, and no one in the world is producing MREC except a very small factory for very small quantity. That is Energy Fuels that is supplying Silmet in Estonia.
That's it. That's the MREC. And so comes in Russia. I forgot that there is a small plant in Russia. We won't go for it. For obvious reasons.
Yep. Thanks, guys. Maybe just one last quick one just on the U.S. facility. Obviously, you mentioned that activities associated with the site acquisition are nearing completion. Can you just kinda step us through what exactly that means? I think on the last call, Amanda, you mentioned that CapEx inflation had been quite strong in the U.S. How are you thinking about, I guess, those exactly how that material could... Sorry, I've just lost my train of thought. How is the U.S. plant running at the moment?
When we're talking about acquisition activities, in addition to just simply identifying a site which is feasible, we actually have to engage with local and state government and otherwise. When we talk about the activities associated with finalizing the purchase of that land, it's all of those things. I mean, writing a sale and purchase agreement for attractive land is not that complex. Making sure that we've dealt with all of the other matters takes a little bit more time. In terms of, you know, sort of detailed engineering design, project management, project costings, just like with Kalgoorlie, it's a process of continual optimization.
We believe that we have a strong business case and, you know, once we've taken that through all of its various stages, we will properly disclose it to the market.
Thanks, Amanda.
Thanks, Al.
One moment for our next question. Our next question comes from the line of Paul Young of Goldman Sachs. Please proceed with your question.
Yeah. Hi again, Amanda. Just two quick ones on the numbers themselves. This might be questions for Gaudenz, but just on the revenue, I think you actually restated your revenue downwards by $30 million relative to the two quarterly revenue numbers. I see there's a revenue adjustment in there of -$ 9 million. So I guess the question is there been some quotational pricing or provisional pricing adjustments? I'm just trying to understand the differences in the revenue. Thanks.
Sure. Thanks, Paul, and I'll take it first, and if you need any more detail, Gaudenz can. Note 6 talks to trade and other receivables. Yes, at, you know, you, as you would know, being in the resources industry, there's often a lag between the quote and the settled price. In this instance, we had some of that actually took us across the end of the year. That's the adjustment which has been made.
Okay. That's, that's good. Thank you. Last one is, just on the startup of Kalgoorlie. I mean, we see with every project, in the startup, a number of costs, you know, reflecting, you know, taking on fixed costs early, just from a modeling perspective. I know Gaudenz has said in the past that, you know, Kalgoorlie will be higher cost than the cracking and leaching facility in Malaysia. How should we think about, from a modeling perspective, the start-up costs, et cetera, in, say, the first six months during ramp-up?
You are seeing some of that flowing through, as I said, into the current costs. As we look at, you know, we've already got the operational leadership team in place in Kalgoorlie. In Malaysia, we will need to have some transition with, we'll do it with contractors sort of backfilling as we move some of our cracking and leaching people into the MREC facility. We do see that, and there will be some other additional costs associated with Kalgoorlie. I think it may be best to offer a call with Gaudenz to sort of talk about that in a bit more detail, because probably not going to work on with the large group here.
We do see in the final quarter of this year that we will continue to look at some operational cost increases which are associated with the, you know, early stage ramp up of both of those facilities.
Okay. Thank you, Amanda. I'll circle back then in that case. Appreciate it.
Okay. Thanks.
One moment for our final question. Our final question comes from the line of Trent Allen of CLSA. Please proceed with your question.
Thanks, Amanda. I'm sorry, I put my hand down before after your all your ramp up details. Thanks for that. This is kind of an afterthought. There's probably a yes, no, maybe, so it'll only take a second. Now at the moment, you, if you can't get the changes you want in Malaysia, you'll sort of finish up with a political bottleneck on your production. Is there a long-term argument for continuing the current flow of IP and people from Malaysia to Australia? Just rebuild the LAMP entirely in Kalgoorlie and then sort of go around the problem. Thank you.
That's a very large question, Trent. I think that we have $1 billion on the ground in Malaysia, and walking away from an asset which is operational and efficient and which has a lot going for it other than every now and then some politics. You know, even as I think about my now nearly 9 years working in the company, most of that time has not been spent on politics. We remember those times because they're so sort of high, high pressure. Most of the time we have simply focused on operating a complex plant efficiently. From where this company was a decade ago to where it is today, our knowledge of that facility and our ability to operate that facility is light years apart.
The quality of our people and our commitment to our people is rock solid. I don't think there's any scenario under which we would willingly walk away from the investment we have on the ground in Malaysia. Are we able to build out the Kalgoorlie facility to do more than simply the cracking and leaching case? Yes, we are.
Thanks for that.
Thanks.
Thank you. At this time, I would now like to turn back to Amanda for closing remarks.
Well, look, once again, thank you everybody. You know, for the analysts, I know that both Daniel and Gaudenz remain open to having further discussions on any of the model inputs. You know, we still are managing a lot of potentially different scenarios in the business. I can assure you and all of our shareholders that we understand them very clearly, and we have a very clear focus of the skills and capabilities required to come through to a successful outcome. Thanks for your time, and I'll see some of you over the next few days and some over the next few weeks, I guess.
This concludes today's conference call. Thank you for participating. You may now disconnect.