Despite a more than doubling in the cost, Lynas Rare Earths (ASX:LYC) plans to build a major US facility financed by the American government remain on track.
Lynas confirmed on Tuesday that it had signed a follow-on contract with the America’s United States Department of Defense (DoD) for the construction of the Heavy Rare Earths component of the Lynas’ US Rare Earths Processing Facility in Texas.
The new contract is an expenditure-based contract under which all of Lynas’ properly allocable construction costs will be reimbursed. Lynas says the US Government has allocated $US258 million to the project, "an increase from the approximately $US120 million announced in June 2022.”
The cost rises were not detailed by Lynas or the US Government but the doubling in the price underlines the importance of the heavy rare earths facility to the Biden administration.
Lynas’ announcement came a day after it revealed record rare earths production, but a sharp slide in June quarter revenues after world prices for the key material slid sharply.
Lynas blamed the slide in prices on weak demand from Japan and oversupply from rival producers in China.
In reaction, Lynas said it will withhold some of its production from markets to try and steady prices.
Lynas also revealed in the quarterly report that it was targeting its first production of mixed rare-earths carbonate from its Kalgoorlie facility in September.
"We continue to accumulate inventory as we plan for the start-up of the Kalgoorlie facility. We have secured supply to our key customers and, in the coming months, given low market pricing, we will hold additional inventory directly,” the company said.
Lynas said that full plant commissioning commenced for the Kalgoorlie rare earths processing facility during the quarter, targeting first production of mixed rare-earths carbonate in September 2023, a month later than previously expected.
In Tuesday’s report Lynas said the new contract followed "detailed design work and cost updates since the original design was completed."
"This project, conceived and jointly supported by Lynas and the DoD, will strengthen supply chain resilience for responsibly produced rare earths as inputs to the United States’ burgeoning high-tech industry as well as U.S. and allied nation national security needs. On completion, this project will be the only scale producer of separated Heavy Rare Earths outside of China.
Lynas says it has completed the purchase of a 149-acre greenfield site in Seadrift, Texas. The site was purchased from Dow Chemical Company, and is located in an existing industrial zone. The site was selected for its proximity to a skilled workforce, potential customers, infrastructure and logistics.
This large site will allow for co-location of the integrated Heavy Rare Earths and Light Rare Earth separation plants as well as potential future growth opportunities such as downstream processing and recycling to create a circular mine to magnet supply chain.
Lynas said the Texas Rare Earths Processing Facility will serve both DoD and commercial customers and is targeted to be operational in 2025-26.
"Once operational, feedstock for the Facility will be sourced from the Lynas Mt Weld rare earths deposit and Kalgoorlie Rare Earths Processing Facility in Western Australia. The US Facility will be able to process feedstock from other sources if/when they become available and are qualified.
Lynas CEO, Amanda Lacaze said in Tuesday’s statement:
“Our Heavy Rare Earths separation plant will be the first of its kind outside China and will help to establish a globally significant, safe and environmentally responsible rare earths supply chain.
"Lynas is the only commercial scale source of separated rare earths outside of China and our expertise makes us the ideal partner for the DoD as it addresses supply chain vulnerabilities and strengthens national security.”
