RPT-UPDATE 2-Malaysian court puts licence on hold for Lynas rare earth plant
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* Company says production should not be affected
* Shares drop 8 percent as investors track legal moves
* Plant key to breaking China's grip on key elements
KUALA LUMPUR, Sept 25 (Reuters) - A Malaysian high court put on hold until Oct. 4 a temporary operating licence granted to Lynas Corp Ltd's controversial rare earth plant near the eastern city of Kuantan, prompting an 8 percent fall in the Australian firm's shares on Tuesday.
The rare earth plant - the world's biggest outside China - has been ready to fire up since early May, but the company has been embroiled in lengthy environmental and safety disputes with local residents since construction began two years ago.
The plant is considered important to breaking China's grip on the processing of rare earths, which are used in products ranging from smartphones to hybrid cars.
Lynas confirmed the Kuantan High Court's decision on Tuesday, but said it would not affect production at the plant and that it plans to strongly assert its rights at the next court hearing.
"That interim order is not anticipated to impact on Lynas' planned schedule because Lynas has planned for first feed to kiln at the Kuantan plant after 4 October 2012," the company said in a statement.
Lynas shares plunged more than 8 percent after the court order to A$0.795, their lowest close in almost three weeks as investors closely track each move in the sensitive case. Earlier this month they rose up to 50 percent when Malaysia approved the licence.
Activists linked to the environmental group, Save Malaysia Stop Lynas, want the court to suspend the temporary licence until two judicial review cases challenging the government's decision allowing the plant to operate are heard.
"It's a small victory, but there is still a long way to go," Tan Bun Teet, a spokesman for the group, told Reuters after the court decision. "We will fight tooth and nail. We have a lot at stake," he added.
The group's previous attempts to legally stop the plant had failed.
Lynas received a temporary operating licence for its long-delayed $800 million rare earth plant earlier this month, enabling it to start production as early as October.
The Malaysian Atomic Energy Licensing Board (AELB) issued the permit following an earlier recommendation from a government committee.
Protests over possible radioactive residue have drawn thousands of people and the project has become a hot topic ahead of an election that must be held by early next year.
(Reporting By Siva Sithraputhran; Editing by Stuart Grudgings, Chris Gallagher and Matt Driskill)
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