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Lynas Rare Earths faces turbulent months amid shutdown plans in Malaysia

Lynas Rare Earths (ASX:LYC) surprised investors on Friday with news of its plan to shut down all operations in Malaysia, except for a mixed rare earth carbonate processing plant, over the December quarter. Minimal volumes of raw materials will be processed during this shutdown. This announcement came as a blow, with the world’s largest rare earths group outside China reporting lower-than-expected revenues for the September quarter.

The company’s shares hit a five-month low on Friday, losing more than 7% in value over the past week. On Monday, the shares dropped by nearly 3%, bringing the total decline in the past six days to more than 10%.

Lynas’s decision has left it vulnerable to potential action from the Malaysian government, which could turn the planned closure into a more permanent ban. Malaysian authorities have been concerned about radiation levels resulting from cracking and leaching for the last couple of years, and Prime Minister Anwar Ibrahim has warned of a policy to ban exports of rare earth raw materials.

To address these issues, Lynas plans to upgrade its downstream operations at Lynas Malaysia, aiming to increase neodymium-praseodymium (NdPr) production to about 10,500 tonnes per annum. This upgrade is crucial for the company, especially if its Malaysian operating license, which currently bars the import and processing of rare earth raw materials from January 2024, is updated to allow continued import and processing of Lanthanide concentrate.

During the shutdown, starting in mid-November for the upgrade works, Lynas will redeploy key staff from the Malaysian cracking and leaching plant to assist with the startup process of its rare earths processing facility near Kalgoorlie in Western Australia.

Lynas also mentioned that an application for a stay to allow normal operations in Malaysia while administrative and legal appeals are heard and decided has been scheduled for a November hearing.

The company’s first-quarter revenue fell by 21.8%, worse than expected, due to lower product prices and its decision to accumulate inventory instead of processing it in Malaysia. Sales revenue for the September quarter was $128.1 million, significantly down from $163.8 million a year ago and market estimates of around $159 million.

Despite the revenue decline, total rare earths oxide (REO) production for the quarter increased to 3,609 tonnes, up from 3,500 tonnes in Q1 FY 2023. NdPr production also saw a year-on-year increase to 1,526 tonnes, up from 1,045 tonnes. However, NdPr production slipped from the 1,864 tonnes achieved in the last quarter due to planned and delayed preventative maintenance works in its Cracking & Leaching plant at Lynas Malaysia.