Lynas Plays Down Fears of China Rare Earths Plot

October 19, 2011, Sydney (Source: ft.com) — When Nick Curtis was invited to the World Economic Forum in Davos this year, there was one topic that political and corporate chiefs wanted him to address.

How could the world guarantee a steady supply of rare earths, the 17 elements crucial for many of the electronics used in everyday life, at a time when China controlled more than 90 per cent of global production?

As executive chairman of Lynas, an Australia-listed miner that owns what it says is the “richest known deposit” of rare earths in the world, Mr Curtis was well placed to answer their queries.

He said the world sorely needs new suppliers of rare earths, including Lynas and US-listed Molycorp, but also pointed out that China also welcomed the arrival of alternative suppliers. The Davos meeting came only months after fears intensified that China’s dominance of rare earths could be used to hold the world hostage to supply after it unexpectedly slashed export quotas and briefly suspended shipments to Japan following a diplomatic dispute.

But in an interview with the Financial Times, Mr Curtis sees others forces at work. “The reality is that China needs to use its rare earths themselves,” he says. “Rare earths have become a token for international fears over China’s ascendancy. But there is not a Machiavellian plot by China to take over the world in rare earths.”

In fact, Mr Curtis expects that China’s demand for rare earths will exceed 110,000 tonnes by 2015 “and at that point they could become net importers”, a critical turning point in the global industry.

Mr Curtis is nothing if not ambitious for Lynas, a company he has led for more than a decade. Lynas is still in late-stage development but Mr Curtis is optimistic the Australian group will begin first its shipments of rare earths next year. He says the miner is already producing rare earths concentrate at Mount Weld in Western Australia but admits the group’s refinery on the east coast of Malaysia “is running a bit late”.

Crucial to Lynas entering production is for Kuala Lumpur to issue the Australian group with an operating licence. That process has been bogged down by political opposition to the plant and local community protests worried about possible radiation leaks. Lynas on Wednesday said a decision had not been reached on the application. Shares in the company fell 9.9 per cent to A$1.09 in Sydney.

But Mr Curtis says the International Atomic Energy Agency this year conducted an independent review into the plant. “They came out and said it was a safe process and made some recommendations that Lynas has agreed to comply with,” he says.

Mike Harrowell, rare earths analyst at BBY, an Australian financial services group, expects the operating licence to be granted in November, but says there is a risk it would get caught up in Malaysia’s next general election, expected to be held in 2012.

“If it was a regulatory decision, Lynas should be able to jump through any hoops. But if it is a political decision, then the risk of a more negative outcome increase,” Mr Harrowell says.

Assuming approval is granted in the coming months, Lynas could ship first product in the second quarter of next year.

“Lynas is poised to deliver,” Mr Harrowell says. “Over the last decade, [Mr] Curtis has positioned the company to be delivering product in the first wave of a new generation of Western suppliers.”

But Lynas’s production launch also comes at an uncertain time for the rare earths industry. Rare earth prices reached unsustainable levels this year due to production bottlenecks but they have fallen heavily since April. Analysts expect further price weakness.

“Prices have come off a lot,” Mr Curtis says. “Three years ago, [a basket of] rare earths were less than $10 [per] kilogramme, then they shot up to more than $200 and now they are back to less than $150.”

Even Mr Curtis expects further falls. “Prices still have a little bit to come back but even $80 to $125 remains a very sustainable level to industry,” he says.