Meetings by China's biggest brokerage Citic Securities' offshore arm CLSA with key Malaysian ministries, politicians and protest groups over Oct. 4 to Oct. 5 have reinforced messaging from the highest levels of government that rare earths producer Lynas Corp. Ltd. has "no case to answer" amid a review of its plant's environmental impact.
The meetings by CLSA's delegation coincided with Malaysian Prime Minister Mahathir Mohamad publicly pledging a fair review of the plant, reportedly telling journalists that the review would not be dictated by the views of Fuziah Salleh and Wong Tack, as the committee is composed of other members.
Salleh, a deputy minister in the prime minister's department and long-time Lynas critic, also appeared to take a more conciliatory tone on Oct. 7 that "the committee will not disrupt Lynas’ operations here [in Gebeng near Kuantan Port], but it is to monitor the plant as the priority of the government is to ensure any action or proposal taken by them will not affect investors."
The prime minister's statement followed what CLSA's Sydney, Australia-based resources analyst Dylan Kelly called a "shrewd public relations/lobbying efforts" in preceding weeks.
That culminated in thousands of Lynas Malaysia staff and contractors voicing their concerns along with local community members in an Oct. 6 rally at Kuantan's Balok Beach that their jobs "may be at risk if the proposed executive review committee acts on the recently reported assertions by certain politicians (who are reported to be part of the committee) that the plant should be shutdown," according to a statement on Lynas' website.
Appealing to the prime minister to "give fair consideration" to the workers' plight, Lynas Malaysia solvent extraction senior manager Khairul Suhaimi said he felt the need to call for the rally as he believed the company and its workers are being "bullied."
"I urge the person running this review to act fairly and be transparent. We have no problem with a review into Lynas Malaysia's operations because we abide by the rules, but we just want it to be fair," Khairul, who has worked for Lynas since it started in the area, said at the rally.
Khairul said he had never considered the plant to be dangerous or harmful to Kuantan residents. Lynas Malaysia employs 631 people, 97% of whom are Malaysian. The chemical factory refines rare earth ores sourced from the company's Mt Weld in Western Australia.
Political risk improving
Kelly, who was in CLSA's delegation, added in his client note that "it was also curious to hear authorities state they understand the highly strategic nature of the plant, acknowledging its closure would be a major international incident which would immediately hand China a global monopoly on rare earth supply."
"Our view of political risk has improved incrementally and we urge investors to see through the noise," he said, as CLSA reiterated its view that risk-reward is "firmly skewed to the upside," and the firm expects Lynas' share price to revert to its pre-election levels once the review is complete by Christmas.
The stock was down in early Oct. 9 trading by nearly 6%, having sunk to A$1.59 per share, its lowest ebb since Aug. 31.
On Oct. 2 Lynas CEO Amanda Lacaze called for a fair review of her company's operations after local media reported that it would be led by Salleh and Tack — the latter of whom was found guilty in July along with 14 others for failing to obey police orders to disperse during a 2014 anti-Lynas protest.
Tack also recently criticized Australian High Commissioner to Malaysia Andrew Goledzinowski for saying during a plant visit in September that its closure would be a "tragedy" and could lead to other major Australian companies to stop investing in the country.
Yet Kelly told S&P Global Market Intelligence that "we certainly got the indication in our meetings with the government departments in Kuala Lumpur on Friday that the business was safe."
"An overly reassuring case was brought to us that everything was actually OK and that there was nothing to worry about, so long as the company was effectively environmentally compliant and telling the truth — and in that case they really don't have a case to answer for," he added.
His Oct. 4 site visit was timely, with the last of the construction scaffolding being removed for its NEXT project which is aimed at boosting capacity to meet demand.
"It appeared clear the expansion to 600 tonnes of neodymium and praseodymium, or NdPr, per month by January 2019 remains on track, or perhaps ahead. It also appears the water supply issues have also been resolved following work on local reservoirs," Kelly's note reported.