Lynas Rare Earths saw a 4% drop in first-half profit on Monday as prices for its metals were eroded by the combined impact of disruptions to water supplies to its key plant in Malaysia, higher processing chemical prices, and rising wages.
The company had already warned of the financial impact of some of these problems, especially the water supply issues in Malaysia and the way they had forced Lynas to cut output, so Monday’s news was not as dramatic as it sounds.
The complete halting of water supplies to the Malaysian plant resulted in 16 days of lost production during the September. That, coupled with rising costs and weaker realised prices, hit the miner’s bottom line.
Lynas Monday told the ASX that net profit after tax for December half year came in at $150.1 million, compared with $156.9 million a year ago.
The world’s largest producer of rare earths outside China had reported sales volume of 7,050 rare earth oxide tonnes (REOt) for the first half, 8.8% below last year, while cost of sales spiked nearly 32% to $185.0 million.
Despite the slide in output, sales revenue hit $370 million for the half year, up from $314.8 million a year earlier.
CEO Amanda Lacaze said on Monday in the ASX filing, “Lynas achieved revenue of $370 million and a net profit (NPAT) of $150.1m. During the period, we invested $240 million in capital projects. Our closing cash balance of $934.2m reflects the strong business performance during the period.”
“These results were achieved despite significant production challenges due to water supply issues in the first quarter and the start of the second quarter as well as rapid increases in costs, particularly for chemical inputs.”
Ms Lacaze continued: “While rare earths market pricing decreased slightly from the highs experienced at the end of the 2022 financial year, market conditions remained stable and an optimised product mix enabled the team to achieve an improved average selling price.”
On February 14 Lynas received notification that Lynas Malaysia’s operating licence will be renewed, effective from March 3, 2023 for a period of 3 years.
“The licence has been renewed with no change to the licence conditions that were applied to the licence issued in March 2020 which prohibit the import and processing of lanthanide concentrate after 1 July 2023, and which Lynas had applied to have removed,” the company said.
Lynas says Lynas Malaysia has now submitted two administrative appeals to the Malaysian Government against these licence conditions. The first appeal is against the decision of the Atomic Energy Licencing Board (AELB) in failing to consider Lynas’ application for the removal of these licence conditions while the second appeal is seeking administrative review of the conditions (as announced February 16, 2023 and 24 respectively).
The company said that construction of Lynas’ Kalgoorlie Rare Earths Processing Facility “accelerated during the half year. Recruitment of the Facility’s operational leadership team is complete and members of the team are resident in Kalgoorlie and focused on the completion of construction and preparations for commissioning and ramp up. Feed on at the Kalgoorlie Rare Earth Processing Facility is targeted for June quarter of this year.
“The Kalgoorlie Facility is important for business continuity as well as growth. Its importance is highlighted following the announcement of the renewal of the Lynas Malaysia operating licence with conditions prohibiting the import and processing of lanthanide concentrate from 1 July 2023.
“If not removed, these conditions would require the closure of the Malaysian cracking and leaching plant. Due to the inherent unpredictability of commissioning, Lynas continues to plan for several potential ramp up scenarios.
“Inventory is being built at all stages in the process to assist in meeting key customer requirements during any transition period,” Lynas revealed on Monday.
And Lynas said the Mt Weld Expansion Project “is progressing well, including Detailed Engineering Design, procurement of long lead time items and award of packages. The bulk earthworks contractor mobilised in January and has commenced site works.”
Lynas shares fell more than 6% to $7.97.
