Earnings Call: Q1 2022

Oct 22, 2021

Quarterly report

Thank you all for standing by, and welcome to the Linus Quarterly Results. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that this call is being recorded today. End, I'd now like to hand the conference over to Lynas Rare Earths. Thank you. Please go ahead. Good morning, and conference call, I will now turn the call over to Mr. Is presented by CEO and Managing Director, Amanda Lacasse. And joining Amanda today are Gareen Stetsonigge, CFO Daniel Haddes, VP call, I will now time, I hand over to Amanda. Please go ahead, Amanda. Thanks, Jan. Good morning, everybody, and A special hello to anyone who's joining from Melbourne. And maybe you aren't joining today because you're too I'm keen to be out and about and making the most of the end of your terribly prolonged lockdown. Anyway, thanks for joining today. Pleased to be able to present the quarterly Results. Joe, we've delivered our 2nd highest revenue quarter on record And that's reflecting very strong demand and high prices. And I guess one of the things that's really Got us pretty enthusiastic is that our customers are very optimistic about future continuing demand growth and time, we continue to see a lot of strength in the price. As we think about, however, some of the challenges was almost completely contained within the quarter. We started at about 5,000 cases a day in closure, we peaked with an extended period of around about 20,000 up to 22,000 cases a day. And then by the end of the quarter, we've dropped back down to about 5,000 cases a day. And of course, that reflected Significantly increasing vaccination rates in Malaysia, including, of course, within time, during the period of time, and it was several weeks where we were looking at the sort 20,000 plus or minus cases every day. It created a really an everyday pressure for And it did mean that there was a lot of infection in the community. Some of Our staff were exposed to it. We run our own very careful track and trace program. And so In some instances, we had staff having to isolate because they had close contacts either with their colleagues or family. I'm really pleased to say that all of our staff who did suffer from COVID have recovered. But as we've noted in the report, Where we did have staff isolating, it tended to be to take our whole crews who And so whilst we redeployed staff across the site, wherever possible, there is a limit to the number that you can redeploy. Say, for example, it's hard to take a technician time, I'll put them into our lab doing some of the highly skilled work required there. Of course, there's a lot written about Some of the effects of the pandemic, particularly on shipping, exacerbated in Australia by some of the Continuing sort of issues on the waterfront with sort of industrial time, we're very pleased with the We were pretty excited at one stage. We got up to about 35 days concentrate cover on-site and we thought this was all over Red Notwithstanding all of the above, as the pandemic effects receded in September, we are very pleased with our production outcomes in Malaysia In Australia, we will absolutely do time, we are pleased to announce our part in complying with the Western Australian Government's vaccination mandate. In terms of managing a safe workplace for our people and the fact that we are operating in a remote location and certainly would not want to in any way introduce any illness into that So we're very happy to comply with the Western Australian mandate. And Hopefully, that will mean that travel in and out of Western Australia will start to happen again It's very exciting that we've now had the EPA recommend the project for approval. Of call, there are still some final steps around this, including receiving the ministerial statement. But as said, it's great to pass Through that gate, we've shared some photos in the report, the aerial photos sort of showing The work which has already started on-site in compliance with the minor and preliminary works approval. You can see our giant kiln. It's well and truly on its way to Australia on time, we are on a specially chartered ship and we believe that we will be in good shape to receive that I can't wait to see it in person. I'm at present sitting out a couple of weeks Quite interestingly, many of you previously, many of the analysts have asked why we're not spending more at We're very confident with the rate at which we have Let our tenders, we have placed all of our orders for long lead time items. So Some of the concerns about sort of cost overruns in that area, we've got a great deal of confidence because they have Those orders have been placed on agreed contracts and pricing, and we've got over 70% of our total equipment requirements have been tendered and contracted. So time, for those of you who were a bit worried about not spending more, you will see that we do actually have a higher CapEx spend this quarter than we've had previously, and we expect that to continue to accelerate as we continue to Accelerate works on-site. We've also made good progress on approvals for the Now preferred site in the giving industrial estate in Malaysia for the PDF and So the EIA there has been lodged and is out for public comment at present. So all in all, a lot of progress in a time when time, I think all of us are just wishing that we no longer ever had to say the word COVID and certainly not with respect 2 business performance. But we're seeing our way through this. The vaccinations of our workforce give us a lot of comfort And confidence in our first objective, which is to ensure their safety and health, but As well as that to ensure the continuation and indeed acceleration of the business as we meet the market. We at Linus did our heavy lifting over the past few years in terms of standing up our facilities, Yes, sort of optimizing operation of those facilities really becoming expert time, we would be a rapid growth phase in the market. We are now seeing that inflection in growth in the market. We think And with that, I'd be happy to take any questions that people might have. Our first question comes from Daniel Morgan at Barrene Joey. Please go ahead. Hi, Amanda. First question, well, congratulations on the EPA recommendation. That's a huge step Forward, just wondering if you could comment on the capital cost estimate of $500,000,000 was given a while ago now and what obviously everyone can see in the market is a very tight market in WA for employees and contractors, I'm just wondering in light of that, what can you say about that budget of 500,000,000 Thank you. Hi, Daniel. Welcome back. I guess the roses are looking good after all that time in the garden. Yes, I'm back, sir. So Yes, I'm aware that there is a lot of speculation about whether we will do as we have done previously, which is bring projects in On time and on budget, at this time, we and one of the reasons why I sort of stress the fact that we've got our All of our long lead time items ordered 70% of our total equipment. We've showed the So on The staffing, the people that are going to need to erect all the equipment that's going to arrive and the contractors, I presume that they're involved. Have you what can you say about organizing, mobilizing them in light of Approval is being imminently granted. Yes. So, we've talked a little bit about this previously and the fact that we are Managing this project in house. And so we've got we've packaged the work into specific So for example, we've contracted a particular supplier to do the kiln Because we're managing this and we're able to construct those packages in a way, we talked about this previous time, they will tend to have more stable workforces. And for example, if we're Operating in sort of a contractor space where people are competing for the same workforce. So we are Engaged with the city of Kalgoorlie on things like accommodation options for sort of peak workforce periods in the construction phase for the project, But we are also working very hard and this has always been part of the reason why we're So where possible, we're using local suppliers. And how much I can obviously see how much cash you've spent on CapEx through your cash flow statements, but how much has been spent on How cool is that project so far? Well, we haven't disclosed that, but we have disclosed that we've Placed orders for 70% of our total equipment and 100 percent of our long lead time equipment, so that gives you a bit of a headline on that. And for us, as we look at this, we think about it on if we think about things like S curves time, things like earned value, we're probably 30% to 40% of the way there even though, of course, we manage our cash. We don't see any reason why we should be sort of spending money fast just so people think that we're moving through things fast. Speculation about this and whether we can do this, I'm not quite sure why There's so much speculation. We have a track record of delivering our projects on time and on budget. And we've We're providing sort of briefing on really the progress that we're making here time and on budget as we've done all of the other projects. And we're telling you that there's something that change exact, but I mean all of these things you just have to do things as you do them and we are doing these things As we do them and we're letting the market know that we're doing it. I mean, I remember someone speculating that there was no way we could possibly get a film produced in the middle of a pandemic, and guess what, it's on its way. So I think we have some track record here. I appreciate all that. And I think the questioning is just Extending from industry trends that we're seeing, not necessarily your handling of them. It's a very tough environment in WA, Just maybe switching tack, just on the operating rates, You had a tough quarter on that with COVID and logistics, etcetera. It seems like that was improving towards the end of the quarter. You said that improved in October, just wondering if you can run harder than the 75% through the end of the year, or is logistics The plant can do it. And Our big challenge will be in a couple of specific areas related Asia is yes, we certainly the Malaysian government has moved to living with COVID, I. Treating it as an endemic disease rather than a pandemic, that gives us more confidence about the way that We're going to be able to manage our operations there. But certainly, we probably have more challenges on shipments from Those production rates and confident that we can do it. So as we get all of the Yes, sort of feed, all of the inputs, which is probably which Yes, sure. And just last question somewhat related to that is, it would appear that I mean you haven't to date been running at full capacity or what your licensing would allow you to do, which is a calendar year license. I'm just wondering if any unused portion Of that that you wouldn't use this year, does that carry over or is that lost at the end of this year? Is that potential lost at the end of the year? We have a conversation with the regulators on that, we had a conversation with the regulators on that last year and because it was It's an unusual year due to the pandemic and we agreed that we could carry over some of that. And we will have a further conversation with the regulators this year, but ultimately, it's within their decision. But given that the regulation primarily relates to quantities of residues produced, time, we believe we can have a productive discussion with them. Okay. Our next question end comes from David Deckelbaum from Cowen. Please go ahead. Good morning, Amanda. Thanks for taking my questions. It's a pleasure, David. How are you? I'm doing well. Thank you. So I'm curious on last caller asked The same question about run rates now. I think you had alluded to in September that operating conditions have improved Significantly, I guess I'm also curious, it appears that some of the production issues, one, Would be just related to staffing and COVID related shutdowns, but also the difficulty in obtaining perhaps some of the chemicals associated with cracking Some of the logistics surrounding some of the processing inputs. Has that situation abated at all Just given some of the ongoing global shipping woes, I guess, we're just trying to get the sense of It's one thing to have better uptime at the plant, but is there still kind of a constraint around necessary inputs to your process? Thanks for the question, David. We've been able to. We've mitigated this by building additional inventory. And so we are carrying more inventory. And for those who are who sort of just track cash costs As opposed to when we put out a half yearly and a yearly, we provide a truer cost picture. We'll see that sort of cash costs have picked up a bit and one of the reasons why is because we've increased Onshore inventory for a number of the inputs and that's a way for us to mitigate some of that logistics risk. But there certainly continue to be challenges and we have to manage it very closely. Stage, we're cautiously optimistic that we've put That we've put sufficient mitigations in place that they shouldn't Handicap it, but much as we want to click our heels three times and say the pandemic is over, time, unfortunately, its effects are lingering. Sure, indeed. Understood. And then maybe just pivoting a bit, you talked about Calgorelli at length and then just talking a bit about Some of the other 2025 projects. United States, some of the expansion there, Can you talk a bit about just the merit evaluation and maybe just some expectations around how that process is going and And what sort of milestones we might look towards for the rest of the year or perhaps into 2022? Sure. I can. I probably can't tell you give you much satisfaction. I would start by saying I am pleased that I don't work in government because Yes, time lines are it seems sort of Infinitely Flexible. And so as we look at this, I said, we met our milestones for submission material. We've provided Further material, I think that the merit we know that the merit review is ongoing. And so we expect that some of that will be tied up with U. S. Budget determinations and time lines. So unfortunately, At this time, I can't give you sort of milestones for when decisions might be made Other than to say that we're now increasingly sort of confident of our ability Understood. I appreciate the answers, Amanda. Okay. Thanks, David. I'm sorry I can't give you something more definitive time, we'd be enthusiastic to be able to do that, but we'll just time, I'll await sort of the determination from the group from the government. Understood. Thank you. Our next question comes from Tom Summatsu. Please go ahead. Good morning, Amanda. Thanks for taking the time to take my questions. I've got two questions. The first one is in regards to 100% of our next production rate, Are we still in compliance with the regulatory caps that we have in Malaysia in terms of how much Linus can produce? Hi, Tom. No, we've talked about that once previously that if we were at 100 percent of mix, we were seeking an uplift in the processing license. There are 2 separate licenses associated with our operations. 1 is the license to import lanthanide concentrate That's granted by the Ministry, but we'll actually go to the AELB and the other one is a Processing approval, which is granted by the DOE. And we've not tested those levels over the last couple And so from the end of next year, we'll start to be getting a little of the rarer carbonate will be coming through from Cal Gurley. So we actually don't see this as a constraining factor on the business at this time. Okay. Okay. And I noticed that I haven't had the opportunity to go through the entire EPA That was approved recommended for approval in the DA. But I think there was mention of one of the conditions is that the waste is now Send back to Mao Weld, am I right? And if yes Can I just check where are you from? Tokyo. Right. Okay. From which Bluebird. Okay. Bluebird. Yes, Bluebird Capital. Okay. Thank you. Yes, no problem. Yes, so in regards to The waste from the processing side in Kalgoorlie is going to be sent back to Am I right? And if yes, what would be the impact on your expected cash cost? Is it going to Move it up or move it down? Or is this going to be neutral? So there are a variety of different effects From being in operating in Australia, there are some costs which go up and there are some costs The proposal as it stands that Yes, we submitted to the EPA for consideration in which they have recommended for approval, includes Back loading material to Mt. World. And of course, we're Lighting material down from Mount Weld and so we have a backload opportunity there, which is Yes, this will, I think, work well for all involved in the process. Okay, that's great. Thank you. Yes. Thank you. Thank you so much. We have no further questions. So Amanda, I'll hand back to you for closing comments. Okay, terrific. Thank you everybody for joining. And if there is anything any further discussion that people would like or sort of more background, please don't hesitate to contact us directly and time, thank you all. Thank you so much. This does conclude today's conference call. Thank you all for joining. You may now disconnect.