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Lynas is on the mend

? Lynas triples production at minimal cost

? Electric vehicle demand growth is big driver of rare earths demand, and China is largest market

? Organic growth to come from current operations rather than M&A

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Kam Leung, vice president of production at Lynas

Australian rare earths miner Lynas Corp. Ltd. is on the road to recovery after facing difficulties meeting its debt repayment obligations late in 2016.

After completing a debt restructuring in late October 2016 and booking record cash flow in the first half of 2017 thanks to improved market conditions and an increase in production, Lynas is now in much better shape.

S&P Global Market Intelligence sat down with Vice President of Production Kam Leung at the Diggers & Dealers Mining Forum in Kalgoorlie, Australia, to discuss what Lynas has done to turn itself around, the outlook for the rare earths market and the opportunities for growth.

What follows is an edited transcript of that interview.

S&P Global Market Intelligence: What is Lynas doing to ensure it does not get into the situation it was in previously, where it was struggling to repay debt and continue as a going concern?

Kam Leung: Our production is now very reliable and we're producing above design rates. As we've ramped up we've managed to contain our costs. We tripled production and we only went up about 20% in costs. So we only put on an extra A$10 million per quarter and we managed to triple production. There's still some room for us to improve that incrementally.

We're also focused on product quality. In the lanthanum and the cerium space, there's actually a range of products, and if you make higher quality products, even though it's at a lower price compared with neodymium and praseodymium, the price you receive can even double or triple.

Where do you see further opportunities to lower your cost base?

We're actually just looking at present to incrementally increase our production through efficiency and better, more stable operations, improved recovery and less wastage. When we actually do that, there will be a corresponding cost improvement because that's extra production for basically very little or no extra cost.

What are you seeing with respect to the rare earths market, and is it picking up?

Very much so. You saw some of the lithium producers talk about electric vehicles and we see that as very, very strong growth that's going to happen. So it's not just about the batteries.

Neodymium and praseodymium are basically going to be in the motors. You've got to have both components for an electric vehicle. The majority of the fleets are using rare earth magnets because they are actually more efficient and lighter.

China is certainly probably one of the biggest markets for electric vehicles, but you're seeing it in Europe and you'll see it in America.

The U.S. has raised concerns over China's dominance of the rare earths market. Is this something you see as an issue facing production in other countries?

We've established ourselves as basically the major and only significant producer outside of China, and we have the ability to grow to meet increasing demand.

We have been supported by the Japanese government. Our senior lender is actually predominantly the Japanese government-led partnership providing funding because the Japanese have actually seen a similar sort of thing. They came onboard a number of years ago to fund our doubling of production, and the main reason they did that was to ensure their supply from outside China.

Does Lynas have any plans to expand its operations through acquisition or potentially diversify to survive future downtrends?

Things that we are looking at include incremental growth of our existing operations and we're also looking at different products that we'll actually make. Some of it will be high-grade or more niche products and some of it will be separation of some of the rare earths that we currently don't separate.

We've got a 25-year ore reserve and we're looking to do drilling to increase that this year. We've got a very high likelihood that we'll actually find it because we know there's ore directly below us.

Our Duncan deposit is a neodymium and praseodymium orebody with high dysprosium, which is the other missing link in terms of rare earth magnets. The Duncan deposit is enriched in dysprosium. Currently, that's just a resource. So we're doing metallurgical test work to convert that to a reserve. Off a bigger reserve, that will actually allow us to go up in throughput and still maintain a long life.

Lynas previously faced legal challenges to its operations in Malaysia from the Save Malaysia, Stop Lynas group. Are you expecting to face further opposition from them?

They are still active. We are coming up to an election, so there are some of those machinations with them. One of the big issues has been our residues. There was a lot of misinformation and untrue information about our residues, but we've been working with a number of research organizations.

The product that we've actually developed is called Condisoil, it's a soil conditioner and that's been through all the testing, it's been declared by the Malaysian government agencies to be basically nontoxic and noncarcinogenic and meeting the requirements. So we're in the final phases of getting Department of Environment approval and the registration for the Department of Agriculture before we can release that as a commercial product.