Lynas And Pentagon Ink Contract for In-Situ Development of a REO Separation Facility

Summary

• Rare earth elements are capturing attention worldwide over their vast application in defence and energy technology and controlled supply with China.
• While the United States and China trade relations are under doldrums, the United States Department of Defense (or DoD) is planning to develop an in-situ supply chain.
• In order to do the same, Pentagon had offered ASX-listed Lynas Corporation (ASX:LYC) funding to develop a separation facility.
• However, due to some tie of MP Material, the second bidder to secure such funding from the Pentagon, with China, the DoD had suspended the funding until further review.
• Post the completion of the review; Pentagon and Lynas have now moved forward with the contract phase for the Phase 1 development of a REOs separation facility.

Rare earth metals are gaining strategic importance across the globe in the wake of their limited and controlled supply from China, leading to a race on a global scale to secure rare earth metals supply amid large application in the military and energy technology.

To Know More, Do Read: China’s Dominance Over the Rare Earth Space Winged ASX-Listed Lynas Corporation.

• At present, China is the largest supplier of rare earth elements, and the troublesome trade relations between the United States and China is prompting the nation to secure the pipeline of rare earth elements in order to avoid any future bottlenecks.
• In order to cut its dependency on China and hammer out China’s dominancy in the space, the United States is now turning its attention towards the development of its local rare earth mines and towards other nations with strong rare earth resources like Australia.

To Know More, Do Read: Australia Signs Critical Minerals Agreement with the U.S; Lynas and Northern Minerals to Lead the Front?

In the recent past, in a bid to revive the domestic supply chain for rare earth elements, the United States Senator Ted Cruz proposed legislation to provide tax rebate and other benefits to local rare earth mines developer and manufactures.

• Once approved, the legislation would allow rare earth mining local companies to deduct from their tax bill the costs of building rare earth mines along with the cost of building processing facilities and equipment purchases.

While the recently proposed legislation is churning out to be a big hope for the development of local rare earth element mines across the United States, it would take some time to cope up with the domestic demand, which in turn, is prompting Pentagon to fund companies outside China, and the ASX-listed Lynas Corporation (ASX:LYC) is one of the major companies outside China to receive such funding.

LYC Inks Contract with The United States Department of Defense

LYC announced that the deal between the Company and the Pentagon to complete a detailed market strategy study, detailed planning, and design work for the construction of a Heavy Rare Earth separation facility has now proceeded to the contract phase.

• The U.S. Department of Defense (or DoD) previously offered LYC funding for the construction and the development of a Heavy Rare Earth separation facility; however, soon suspended the same, over MP Materials’ ties to China in the face of a minority holding, leading to a review.
• Post the review; the Pentagon resumed the funding for two processing projects offered to the Company and MP Materials.

LYC now anticipates the allocated work to be completed in the financial year 2021, providing an impetus to the Company’s 2025 growth plan.

Furthermore, LYC suggested that the Heavy Rare Earths separation facility is an attractive and strategic proposition, which would provide product suite outside China.

• LYC now plans to utilise the inhouse intellectual property and proven track record to design and operate the separation facility, which would source its ore from Mount Weld in Australia, owned and operated by the Company.

June 2020 Quarterly Performance

During the June 2020 quarter, the production at Mt Weld was temporarily shut down from 9 April 2020 until 16 June 2020 as the global concentrate inventory levels reached maximum targets, allowing the Company to complete improvement and maintenance projects.

• LYC produced 2,579 tonnes of rare earth oxides during the same period, which remained ~ 42.23 per cent down against the previous quarter.
• The NdPr production for the quarter fell by ~ 43.38 per cent against the previous quarter to stand at 775 tonnes of rare earth oxides.
• The Company suggested that the primary reason for the decline in the production during the quarter was the temporary suspension of Malaysia plant in compliance with the Malaysian government’s COVID-19 Movement Control Order.
• Furthermore, operations restarted at the beginning of May 2020 and were running at approximately 70 per cent of the Lynas NEXT production rates, sufficient to refill supply chains and restock depleted inventories of critical material.

Over the sales counter, LYC sales volume of rare earth oxides fell by ~ 59.18 per cent against the previous quarter to stand at 1,878 tonnes, leading to sales revenue of $38 million, which remained ~ 58.34 per cent down against the previous quarter.

• However, the Company realised a ~ 2.0 per cent higher average selling price against the previous quarter at $20.2 per kg.
• Furthermore, the sales receipts took a hit of ~ 58.41 per cent against the previous quarter at $42 million.

Lynas further suggested that during the quarter, project teams continued to make solid progress on Lynas 2025 growth initiatives with Kalgoorlie project team continuing to progress construction and engineering plans while completing key studies and procurement activities.

• In mid-June, the Metso Outotec received a contract to supply the Kalgoorlie plant’s kiln following a competitive tender, and the contract for engineering and supply of the kiln is valued at ~ 21.6 million.

The stock of the Company last traded at $2.4 (as on 28 July 2020 01:15 PM AEST), down by 1.23 per cent against its previous close on ASX.

In a nutshell, the United States is aiming to develop rare earth mines to secure the supply outside China, which currently controls the largest supply of rare earth elements, crucial for defence and energy technology.

In a bid to do the same, the Pentagon offered the ASX-listed Lynas Corporation to develop and construct a refining plant at the United States, which would further source its ore from Mount Weld in WA.

Furthermore, after a temporary suspension in the funding, the U.S. DoD and Lynas have now moved to the next stage with LYC finally inking a contract with DoD over the development of a Heavy Rare Earth separation facility.

The news was welcomed by the investors with the stock of the Company standing tall on ASX with an intraday gain of over 10 per cent on 27 July 2020, post announcement.