* CEO says 1st stage capacity of 11,000 T to be hit latest
* Says project profitable even at current depressed prices
* Lynas, Molycorp hit by funding squeeze, delayed production
* Shares of sector languish at multi-year lows
By Sonali Paul
KUANTAN, Malaysia, July 3 Australia's Lynas Corp
, one of only two rare earths producers outside China,
expects to reach its initial output rate target by December at
the latest which should shore up its shaky cash position, its
new CEO said in her first interview.
Lynas and U.S. miner Molycorp Inc are being closely
watched as they are both on the cusp of achieving steady output
four years after China tightened its grip on the world's supply
of the metals used in smart phones, cars and missiles and sent
their prices rocketing.
Their ramp-ups have been stalled by the challenges of
running environmentally safe, complex chemical plants, but
prices of the products have, meanwhile, slumped after China's
export curbs scared manufacturers who need the metals into
finding ways to reduce their use.
So what should have been a boom has so far turned out to be
a bust for those who had hoped new sources of rare earths would
be swiftly developed to meet demand from high-tech manufacturers
in Japan, Europe and the United States. That has squeezed Lynas'
and Molycorp's funding and their share prices have tumbled.
With the two companies taking longer than expected to hit
full stride, around 200 rival mine projects in Alaska, Canada,
Sweden, Kyrgyzstan, South Africa and Western Australia, have
been left on the drawing board as investors, lenders and
manufacturers wait and watch.
"The pressure is on Lynas and Molycorp to demonstrate that
rare earths is a viable business," said Dudley Kingsnorth, a
rare earths expert at Curtin University in Western Australia,
whose forecasts are widely used in the industry.
Lynas mines rare earths at Mount Weld in Western Australia
and then ships concentrated material in 2.5-tonne bags to
Kuantan in Malaysia, where it has built the world's biggest rare
earths plant on a 100-hectare site surrounded by other chemical
plants and peat swamp forest.
It had hoped to be producing rare earth oxides of lanthanum,
cerium, neodymium and praseodymium, used in supermagnets for
wind turbines, car brakes, batteries for hybrid and electric
vehicles, and energy efficient light bulbs by early 2012.
But more than two years later it has yet to hit stage 1
capacity of 11,000 tonnes a year, racked by opposition to the
project on environmental grounds and by technical problems. Once
it reaches that rate, Lynas will be cash flow positive, CEO
Amanda Lacaze, who took the role in June, said on Wednesday.
"We have an opportunity here to take something and be
significant in a worldwide sense," Lacaze said.
Lynas is being shored up by the Japanese, who have been
eager to find an alternative supply of rare earths ever since
China held back supplies amid a territorial dispute over the
Senkaku Islands in 2010.
Trading house Sojitz Corp and state-run Japan Oil,
Gas and Metals National Corp (JOGMEC) provided $225 million in
debt for the second stage of its Malaysian plant, which included
Sojitz taking 8,500 tonnes of product.
Lynas managed to make the first $10 million repayment on
that in March, but with cash tight, it is now trying to
refinance that debt through Nomura to give it a single repayment
due in 2016, instead of payments over the next two years.
PROFITABLE AT CURRENT PRICES
Lacaze does not expect rare earth prices to soar back to the
levels they hit in 2011, when some rare earths products were
worth more than 10 times they are now, and says Lynas can sell
its products for a profit even at current prices.
"Demand is not the thing which is driving our current
production profile. A number of our key customers would happily
take significantly more product from us than they are doing
today," she said.
Global demand for rare earths is likely to be around 120,000
to 125,000 tonnes this year, Kingsnorth forecasts, and he
estimates it could reach 180,000 to 200,000 tonnes by 2020.
China consumes about two-thirds of global production, so for
manufacturers outside China looking to diversify their sources
of supply, that means by 2020 about 60-70,000 tonnes would have
to come from outside China.
Together, Lynas and Molycorp will have about 45,000 tonnes
of capacity, which leaves room for only two or three rival
projects. Kingsnorth says companies that can extract heavy rare
earths, like dysprosium and yttrium, will have an advantage over
those with light rare earths, as supply is tighter.
The industry's uncertainties have knocked down shares across
almost the whole sector to at least five-year lows in 2014, and
in some cases like Molycorp and Arafura Resources, to
But Lynas, Molycorp and other aspiring producers could be
helped by China's moves to consolidate production among its
biggest producers, rein in illegal output and clamp down on
environmental damage from rare earths plants as that will raise
production costs in China, which should push up selling prices.
Japan's Sojitz, looking to supply manufacturers in Japan
such as Panasonic Corp, Toshiba Corp and TDK
Corp, is eager to see Lynas succeed, as they can no
longer find substitutes for rare earths in their products.
"Now they are looking for a reliable source and sustainable
supplier like Lynas to protect sustainable growth," Sojitz
spokesman Kenta Ishimori said.
(Additional reporting by James Topham in TOKYO; Editing by