Lynas Rare Earths Limited (OTCPK:LYSCF) Q2 2023 Results Conference Call February 26, 2023 7:00 PM ET
Company Participants
Jennifer Parker – VP of Corporate Affairs
Amanda Lacaze – CEO and Managing Director
Paul Le Roux – COO
Gaudenz Sturzenegger – CFO
Conference Call Participants
Al Harvey – JPMorgan
Paul Young – Goldman Sachs
Daniel Morgan – Barrenjoey
Levi Spry – UBS
Reg Spencer – Canaccord
Regan Burrows – Bellpotter
David Deckelbaum – Cowen
Trent Allen – CLSA
Jennifer Parker
Good morning, and welcome to the Lynas Rare Earths Investor Briefing for the first half of the FY ’23. Today’s briefing will be presented by Amanda Lacaze, CEO and Managing Director. And joining Amanda will be Gaudenz Sturzenegger, CFO; Paul Le Roux, COO; and Daniel Havas, VP of Strategy and Investor Relations.
I’ll now hand over to Amanda. Please go ahead, Amanda.
Amanda Lacaze
Thanks, Jen. Good morning, everybody. It’s good to have an opportunity to speak with you all again. I’m pleased to present what I would call a solid result for the first 6 months of this financial year and take this opportunity to say a few words on performance.
Knowing you only want to know about the Malaysian license and Kalgoorlie, but the business is so much more than just 2 issues. If it was only 2 issues, then all of our lives would be a whole lot easier. So I’m just trying to move along here — so on the presentation, and it doesn’t seem to want me — there we go.
Of course, I would like to take this opportunity to acknowledge the traditional owners of the land in which we live, work and meet across the Australia. We acknowledge and value our Aboriginal employees and are very pleased that we continue to increase the number of our Aboriginal and Torres Srait Islander employees in our business, particularly in Kalgoorlie, and pay our respects to their elders past and present.
So just looking really at the financial highlights of this year, which I’m sure you’ve all looked at. The revenue — our revenue remains very exposed to benchmark pricing, even though — and I think for those who’ve been in the stock for some time, you know that everything we sell, we sell on a contract basis to a customer. Most of those contracts reference in some way benchmark pricing. Not all, but most. So we are still very exposed to that.
And after the very high levels that we saw in the second half of last financial year, we drop back to more stable pricing in the range of $85 to $100 a kilo for NdPr. Of course, pricing trends and cost trends are not always aligned because the factors that influence the price of, particularly NdPr, and not necessarily the same factors that affect the input costs in our business.
So our costs did go up through the first 6 months of this year. And some of those were completely unavoidable, for example, the sulfuric acid price, which more than doubled during that period. Some of them were cost increases that we elected to take. For example, some of the noncapitalized costs associated with growth. Things like our — the costs associated with building the stockpile of both concentrate and direct shipping ore at Mt Weld ahead of the Kalgoorlie start-up.
The team is very focused on identifying — and it’s one thing to just say, well, the cost has gone up, and everybody all over the world are saying the costs have gone up. What we do need to do is to find efficiencies and improvements in our business to be able to mitigate some of those cost increases. We have a full team working on properly analyzing opportunities for continuing to improve costs, always finding a way to do it better. Finding more efficient ways to do it is the best way that we can mitigate increases in cost from the external environment.
As you will see on the next page, our CapEx spend really accelerated during this 6 months of the year. But despite that, we’ve had a big accumulation in cash. And that really makes us all feel very comfortable as we maintain our balance sheet strength to support our growth program. Once again, those of you who’ve been investors in our company for some time would recall that when we originally conceived the Kalgoorlie project, we thought we would be able to fund it from cash flow. And as it turns out, that is actually very much the case that we are sustaining a very high cash balance despite the fact that we have significant cash out as part of our capital program.
So in terms of production, if you look at this, clearly, lots of disclosure on water issues already up until now. I don’t propose to go overall all of those, except to say that the plant has recovered from that. We had a strong finish to the first 6 months of the year and saw that sort of stands in good stead as we move through January.
So just looking at some of our ESG highlights. I think it’s really important to say that in our business, ESG is not just an acronym, not just something that we think about so that proxy advisers don’t give us grief when it comes to our annual report. ESG is really important. We all have to live on this planet, so the way that we interact with our environment is critical. And even as we look at things like our Mt Weld expansion — and we were really delighted in November to welcome the West Australian EBA Chair and members of his team to Mt Weld, so they can see the scope of our proposed expansion.
It is still important, even though, as far as the eye can see, you really can’t see any other human intervention in the landscape. If we take ESG seriously, we still have to think about how do we minimize our impact on that environment and how do we minimize our footprint. So in the first 6 months of the year, we continue with a very good safety record. It can always be better, and we spend a lot of time with our people working on that. We received the AELB audit of our operations in Malaysia, which once again, were the highest possible rating.
And we maintained our ISO certifications.
In terms of our communities, we hold a very strong ethos within our company that we cannot prosper if our communities to prosper, and we continued with a range of community engagement programs in each of our 3 locations, including now, a local giving program, which has been launched in WA, which sees us engaged in the Kalgoorlie area with certain contributions for various community groups.
Of course, climate is an essential part of our environmental initiatives. We’ve issued the tender for our gas hybrid power station at Mt Weld. We expect that we will get a transition to gas from diesel before we have the finalization of all elements of the renewables power supply in that location. I’m quite excited about that as I think everyone else in the company is, because transitioning from diesel to gas is going to once again improve the effect that we have on our surrounding environment.
And we’ve signed a contract for a pilot solar installation at Lynas Malaysia. And we’ve not finished building Kalgoorlie yet, but we’re already working on how do we revegetate areas that we’ve had to clear as part of the construction program. We want more vegetation around that facility, and we’re doing the work now to have the seedlings available, so once we complete construction, we can start that revegetation program.
So as I said, as we think about our business, the price goes up and the price goes down, but actually, the fundamentals remain positive. This just gives you a sense of the — not just sustained but increasing focus on rare earths by governments around the world. The desire to find better mechanisms to facilitate the growth of the industry. For us at Lynas and our shareholders our business will be better and stronger so long as the outside China supply chain and market continues to grow. And so we see this focus and attention as being critically important to the health of our business in the longer term.
Actually, I’m just looking at this, and I’m sort of amusing myself because we didn’t shade in China, which — and rare earths has continue to have the attention of the Chinese government as well. So I think what we’ve seen in the past 6 months, and this is being highlighted, I think, in many other results presentations the Chinese economy can be a bit variable, so we see a little bit of that reflected in pricing. But we continue to see fundamental factors driving growth of this market remain really robust.
And so as we look at that, the global energy transition, it needs a lot of metals, which are
going to mostly come out of the ground, and the demand for rare earths is going to continue. And we’ve just got some little examples there so that those of you who create models can think about how you factor these into your demand modeling. Suffice to say that we think there’s plenty of demand to keep us going and to keep our operations — our enlarged operations operating very successfully.
So just a few words on Malaysia. The first thing I would like to say is that the Malaysian team remains absolutely on point despite all of the issues. So we look at the politics and certainly, that causes our people to sort of worry for themselves, but also worry for Malaysia, I’ll come back to that. But the team remains focused and resilient managing, as I said, not just current operations, but also the installation of facilities, which mean that we will be able to receive the mixed rare earth carbon from our Kalgoorlie facility. As part of that program, we’ve taken the opportunity to also include certain operational and HSE improvements in that project.
And for the first time, we’re giving you a few photos associated with that. The polishing filter press, the de-canter, sulfate removal pulps. All of these things are going to ensure that we are able to continue to operate — so I seem to have had control of this taken away from member, but whoever is controlling the presentation, yes, it’s weird. You can see some of the photos. It’s not a small task, even in Malaysia.
It’s by no means the size of the Kalgoorlie task, but getting this right and ensuring that the flow sheet works is clearly a critical part of our ongoing activities. So let me then talk to this issue around the Malaysian license.
As said, the commitment and the confidence of our team is — has never wavered. We are not seeing increase in turnover. That’s important. It means that we keep our skills within the business. I was very excited and proud, actually, of a couple of our young engineers when we had some visitors to the plant a couple of weeks ago.
And one of them, I’ll call him by name, Ernie, who’s been with us since he was a graduate engineer, graduated from the oil and gas university in Malaysia, but he choose to come and work for us because these are the materials of the future. And as he made this impassioned plea, he talked about the fact that Malaysia cannot rely on oil and gas forever.
Jan Yasmin, who’s been with us for about 6 years, joined us an intern, and today, is one of our senior process engineers. She is a great example of the sort of skills and capabilities that we’re growing in the company. She’s worked across solvent extraction and product finishing and is now and CNL and will be coming out to Australia in April to assist as we bring feed on and commence the ramp-up. Of course, the key message that we seek to give to the Malaysian government is that there is no trade-off in jobs and safety here. We had the economic activities, and we run a safe and low-risk operation.
Some of you would have seen last Thursday that our Malaysian team and contractors and local communities all gathered together to send a message to the government of the importance of continuing to operate the Lynas Malaysia facility in its entirety. And once again, I was really delighted and proud to see the commitment not just from our people but particularly also from our communities. [indiscernible], one of the senior leaders in our local [indiscernible] community, I think put it really well. And he said, 30 years ago, this was a little fishing village. Now it’s a thriving township, and that is because of industry and industries like Lynas.
And he did suggest that those who didn’t live in the area actually came, visited and stopped opining on what’s going on in the area if they haven’t ever actually visited, which I thought was interesting.
So I know that all of you want to know, can we fix this situation where the license has been renewed with the 4 conditions intact? Well, hopefully yes, but I cannot tell you that, that will be the case. One of the reasons why we exist as management is to manage risk and certainly understanding what’s the downside and upside risk associated with this decision is a key part of our lives. As we’ve indicated in the disclosures that we’ve made, Malaysia provides a number of avenues for appeal, both administrative and legal. We still have plenty of time to progress those appeals.
We’ve lodged the first 2 administrative appeals at this stage and sort urgent response to those appeals.
But we still have time to ensure that we do properly educate the new government on the opportunities which are in front of Malaysia if Lynas is retained in its entirety. And that includes processing of upstream feedstock materials, which Malaysia has, both in claim deposits, but also monazite which is sitting in previously mined tin tailings or mineral sands and otherwise. These are sort of important feedstock options alongside hard rock mining as we do in Mt Weld. And also, the really significant economic opportunity associated with downstream development.
We’ve signed an MOU with one of the major potential motor manufacturers in Malaysia to supply material. And even on the most conservative estimates, there’s probably at least 15,000 downstream jobs, which could be associated with the development of Magnet plant and motor-making facilities. So the situation today is not our most desirable situation. But once again, we have time between now and the 30th of June to continue our engagement process with the government to ensure that the government really does understand that these operations run safely and the economic opportunity is significant.
Just moving on to Mt Weld. It’s really exciting. I was there a couple of weeks ago. And compared to when I first visited in 2014, we are still a small site by comparison to many of the other mine sites in Western Australia, but we are so much more than we were then. And we’ve got the new earthworks commencing, which is pretty exciting.
I think the other thing that probably I was most excited about was some additional water exploration that we’re doing as we seek to continue to grow our production at Mt Weld. We certainly need more water. And those of you who have been following us would know that a large part of the Mt Weld exploration project is water, water treatment facilities continuing to improve the way we use what is maybe, in some ways, an even more precious resource than the rare earths in the ground themselves.
And then as we’ve indicated, we’re creating stockpiles for Kalgoorlie. We have 2 stockpiles. We have one, which is concentrated in the unload which is direct shipping ore. We’ve been mining a particularly rich part of the deposit over the past a year or so. And so we have a direct shipping ore with — stockpile with rare earths between about 28% and I think up to about 32% within that stockpile.
Kalgoorlie, which is the other one, and everybody always wants to talk to me about, of course, some months may so — sort of been my first go on when it’s going to be done. There is inherent uncertainty in any schedule. Suffice to say that we have a cost — continuous optimization of the project schedule. So those items that we identified as critical path items 4 weeks ago are longer critical path items because we’ve identified solutions for them. And as we do that, the critical path moves around.
We are 100% focused on delivering those items that must be in place for a successful startup. And there are others that can wait. I don’t really mind if people’s offices are — those that’s around rather than in a beautifully appointed a combination building, say, for example. And we are progressing very quickly with the knowledge exchange between Malaysia and Kalgoorlie, which should facilitate a better outcome in terms of the startup.
We modeled a series of scenarios ranging from early feed on rapid start-up to late feed on slow startup, and we have accommodated that within our business planning. So once again, understanding risk and mitigating it is the important thing. Of course, the other most important thing is understanding our customers’ needs and making sure we meet those needs. Because you can deal with anything unless you have customers because that’s actually where the money comes from. So really quite, I think, impressive photos of the work which has been done, but you can see why we would be looking at sort of our revegetation program already.
In the U.S., work continues. I’m sort of always conscious that these seem to be fairly bold statements, which probably don’t reflect the amount of effort that’s involved in the U.S. project team. Certainly, from — moving from where we were with sort of design and estimate to really having this project ready to go has required a lot of focus and effort. The engineering design is complete.
We’ve got detailed costings in place. We’ve identified a site in the Gulf. We’re finalizing some of the activities associated with hiring in that site. And so finally, really just finishing up the commitment to ESG remains our commitment to our people and communities, our commitment to the environment and our pride in the fact that this has been recognized by various different awards.
So we remain in an exciting time. We are growing to meet the accelerated market demand. It would be wrong to say that we are not all working very hard, but as I tell my children, hard work is its own reward. And so I expect that we will all be rewarded as a result of the heavy lifting that we’re doing at present.
So with that, I am happy to take any questions. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Al Harvey of JPMorgan.
Al Harvey
Just I guess, I want to get my head around the project sequencing a bit more. I noticed in the report, you’ve said that Kuantan does appear on track to receive the mix rare earths carbonate from Kalgoorlie. But at this stage, Kalgoorlie is a target before that July 2023 deadline. I suppose I’m just trying to get a sense of your confidence in reaching that target. I know you said you’ve modeled up a range of scenarios.
So I guess a follow-on question from that would be, what are the options if there is a delay to commissioning at Kalgoorlie and your ability to meet those contract obligations and customer needs that you mentioned?
Amanda Lacaze
Okay. So the simple answer to this is that we understand our customers’ demand profile, and we are scheduling production and sales and inventory to be able to ensure that we sustain supply to our key customers, and therefore, we don’t disrupt the production programs.
In terms of asking me about my confidence level, I always think that the best indicator of future behavior is past performance. And we have proven ourselves to be competent at bringing on new facilities. Now they’ve not been at the size of Kalgoorlie previously when we think about the Lynas NEXT program, say, for example, in Malaysia. But this is a substantial transition that we’re talking about, and we’re talking about new processes in both jurisdictions. So it would be foolish of us to not have a view of what might happen if they take — if they are slower to stabilize sort of our target plan.
But we have confidence. We have sort of our limits on this. We understood how long it took us to start up and get the Malaysian plant stable a decade ago. We’ve learned an awful lot. Kalgoorlie is a stage, I would say, sort of cracking and leaching 4.0.
So I think we have reasonable data on which to create our various models, but I won’t tell you a percentage confidence other than to say, I think we have a reasonable track record.
Al Harvey
Just a second one. I guess thinking about the reviews and appeals for cracking and leaching in Malaysia. Are you able to kind of outline expected time frames for that or at least kind of like a range, I guess, to get us thinking about when that could possibly come back on? And I guess, what the support in the community for the project is, obviously politically sensitive, particularly ahead of state elections coming up later in the year?
Amanda Lacaze
So I guess to take the second part of the question first, Al. We had well over 1,000 people at a rally on Thursday in Kuantan. That evening, there was one of the — it was in [indiscernible]. There was one of the chambers who said we’ll have an information anything, and this was basically run on the old Lynas groups. I think they had about 15.
So that gives you a sense.
And there’s a certain amount of, I need Lynas, sentiment is a bit like muscle memory. It was such a big issue in 2013. But as our local communities will tell you that was when they didn’t know what it was going to be like. They didn’t know how we’re going to run the business. They didn’t know whether we were going to be safe or not safe.
There was all of the angst about, this is going to make our future flow and that are — all of that sort of stuff because you had silly politicians making YouTube videos sort of talking about those sorts of things.
So I think 10 years on, our community see us to be a serious business that takes our duties and responsibilities to our local community and to the environment seriously. And inside the company, as I always say to our people, we need to always do the right thing. We need to always comply with the regulations. And if we do that, ultimately, decisions do have to be made fairly, equitably and based on evidence, and the evidence is on our side.
So how long will it take? Well, I wouldn’t want to predict how long Australian regulators take to do anything, much less sort of not in my own country. But I think it has the attention of government and that has the attention of the regulators.
Operator
Our next question comes from the line of Paul Young of Goldman Sachs.
Paul Young
Some further questions on the license and the contingency plan. You’re right, it’s the focus of the call. I mean, I think the key is stepping back, I mean, we know that Mt Weld has a very long life, and we’re all — most likely believe is in the fundamentals NdPr, but I just really want to try to understand the ramp-up near term, particularly in the next 12 months.
So just further, I guess, if the appeal isn’t successful, I’d really try to understand what the contingency plan is. Because if I look at Kalgoorlie, and if you’re producing some carbonate in June, you probably won’t have a sizable amount of carbonate production at LAMP until September, October. So there’s obviously going to be a delay there on building up that stockpile.
So I’m trying to get a sense of how do you actually avoid tightly curtailing LAMP in the December half? Have you built up a carbonate stockpile in LAMP. I’m just trying to look at the math, looking at the mass balance. So just trying to see how you actually avoid actually curtailing LAMP.
Amanda Lacaze
In a worse-case scenario, yes, finished goods production at the LAMP will reduce. I mean that’s the arithmetic. As I said, the important thing is to identify how do we manage our inventory to meet our customers’ needs, and that, we have a plan to do.
Paul Young
Okay. So in that case, the downside scenario is a partial curtailment of LAMP deliver into contracts to those important customers and just really just get through the next 6 months or so while Kalgoorlie ramps up. Would that be fair?
Amanda Lacaze
Yes, it takes that long. I think as everyone who’s followed the stock for a while, we’ll know there’s any number of things that can affect production at one stage, beginning of COVID, we were shut down for 42 days. Last quarter, we had — sorry, in the first quarter of this financial year, there was the shutdown following the huge sort of water outage. So there are things that can disrupt production. And if we manage this — we’ve learned how to manage those things, we will manage this transition for the benefit of our customers once again.
Paul Young
Yes, that’s clear, Amanda. I mean the next question I have is, again, back on the mass balance, I’m just trying to understand the next 12 months. Looking at Kalgoorlie, it’s, I mean that kiln is rated at 160,000 tonnes per annum of concentrate. Sorry to throw numbers at you, but — and the cracking leaching in Malaysia is rated at 60. So it’s obviously — Kalgoorlie cracking leaching is designed for the full expansion of 12,000 tonnes, yet Mt Weld only starts ramping up in the middle of 2024.
So there’s a 12-month period where the kiln in Kalgoorlie will be running well below utilization. Just trying to understand what the — how you’ll manage that plant running batch treating or stopping and starting it and the impact on costs. Just trying to understand the operational sort of approach to Kalgoorlie in the next 12 months, while you’re waiting from Mt Weld to ramp up.
Amanda Lacaze
So some of those numbers aren’t quite right, Paul. So we’re going to have the facility to be able to continue to grow. But on start-up, Kalgoorlie won’t run at 12,000 tonnes. And we certainly won’t be batching. It won’t be like that at all.
So if we find ourselves in a happy position, which is — remains our objective of running 2 cracking facilities, then we will be building inventory of MREC as we continue to process concentrate in Malaysia.
I don’t think that we’re going to have an issue with Kalgoorlie running way ahead of the Mt Weld expansion. But even with the Mt Weld expansion, we’re timing that so that we release current bottlenecks. So it won’t just be Mt Weld works at 1 level and then the next day, it jumps up and works at the next level. The way that we’re doing it currently, the dewatering and filtration circuit is debottlenecking Mt Weld. So that’s the first thing that we’ll be putting in place, so we’ll start to get some incremental improvements in throughput at Mt Weld as well, which will match with, we believe, the ramp-up in Kalgoorlie.
So we think we’re able to align these things pretty well. And — but the big thing being that we do need that next big step-up in being cracking and leaching capability to align with the 12,000 tonnes that will be coming from Mt Weld. I think that there remain other options for us to look at alternative feedstocks. We just wish that there would be some others that would actually get projects online to deliver some of the feed stock that would be useful for us in the jurisdiction.
Operator
Our next question comes from the line of Daniel Morgan of Barrenjoey.
Daniel Morgan
On the appeal, does this allow for you to continue cracking and leaching theoretically beyond the 1st of July, if the appeal is still ongoing or not?
Amanda Lacaze
Thanks, Daniel. We don’t have an answer to that. There’s — as said, there’s a lot of time between now and the 30th of June. There are avenues for us to seek relief in particular ways, including seeking an injunction to continue to operate as consideration as the appeal continues. We’ll progress that depending upon what the responses are to each state.
We have and have had for some time the timetable and the escalation in various different appeals, grounds for the appeals are all developed already. And so we would hope that it can be dealt without needing to do that, but it may be that we do require some sort of extension as the appeal process continues. Hopefully, it will be resolved before that.
Daniel Morgan
And in your release, you talked about building inventory at various parts of your process. Just wondering, technically, can you run cracking and leaching in Malaysia above what the finishing circuits in at LAMP need? And is it possible to build an inventory of sort of an intermediate cracked and leach product? Or is the nature of the product that it degrades in the atmosphere or something and you can’t store it?
I’m just thinking is it possible to run cracking and leaching really hard through the 30 June and have an inventory of product that you could continue to finish up Malaysia?
Amanda Lacaze
Yes. Our people are doing absolutely everything they can to do that. In terms of work in progress through the plant, yes, we can build some work in progress inventory. But as fast as cracking and leaching goes to increase their throughput, then SX and PF lift theirs as well. So yes, we do have big tanks that take the leached material and of CNL.
We also then have a second set of big storage tanks in front of SX5, and we will make sure that we have those tanks as full as we possibly can. But I’m sort of quite proud of the fact that when we rate CNL, our SX rate’s up, our PF rate’s up alongside it. So but we will have those tanks full. But they’re not months and months on months of inventory there, just week.
Daniel Morgan
And how quickly do you plan to run the plant for the remainder of this fiscal year through to the deadline given the, I guess, your annual processing limits, which have been a handicap in the past, are somewhat redundant now? Do you run flat out through to the middle of the year? And do you have work in process or concentrate at LAMP in order to do that?
Amanda Lacaze
Despite what might look like, we’re always around to find out. We always go as hard as we possibly can. I’m a bit simple on these things. A day’s production that you don’t have today is a day that’s lost. And a sale not made today is a sale that’s lost.
So we’re absolutely running flat out. And as I said, we’re looking a little inventory, and that goes right back to the stockpiles at Mt Weld.
And if it all ends up as finished goods inventory, then that’s fine, too. If we’ve moved it through and we’ve produced it at full speed in all parts of the plant in Malaysia. So yes, we’re running full on. We’ll — we don’t have any major magnets at the kilns. That’s all been done in sort of last calendar year.
We will have to have some quick planning and things. And we’ll have to have some short shutdowns as we tie in the new MREC capability. But other than that, we’re running full speed.
Daniel Morgan
And last question, sorry, if I may. Would you consider selling concentrate or doing some sort of a TOL treatment deal in the back half of this calendar year, if business is — you don’t have Kalgoorlie running and to avoid a production gap? Like would you sell concentrate into China or elsewhere in TOL treatment?
Amanda Lacaze
There’s nowhere else to sell it to other than to a Chinese processor. And no, we don’t need to do that.
Operator
Our next question comes from the line of Levi Spry of UBS.
Levi Spry
I might back to the volume question. I’ll let you up for a minute. But just on price, I guess. So what are your expectations around the upcoming China quarter?
Amanda Lacaze
Pol is on the call. I might let Pol have a chat about this, but I’m going to set them up with the fact that whatever our forecast is on price, it’s always wrong. And the really cool thing is that there are some of us who have a bet on a bottle of red wine on what the price is going to be and someone always loses. So we always have red wine. But why don’t I pass over to Pol to actually give you a bit more context on that.
Pol Le Roux
Can you hear me?
Amanda Lacaze
Yes.
Pol Le Roux
Yes.
Amanda Lacaze
Yes.
Pol Le Roux
Okay. Thanks. So I love red wine. But I don’t have a crystal ball with me. What I can comment on is that we are still — I think a bit 2 years back, and DPI is at $85, CF China.
Two years ago, we would never imagine it’s $85. And terbium is $1,200 and terbium is $ 300. so first point is that the prices are pretty high compared to the last 20 years, with the exception of probably 6 months in ’22.
Second, it’s true that it went a bit down after the relining of the year because the demand did not increase as expected in China right after the end of the year, but the door is still open. You know that the production quotas will be announced some time. No one knows. So uncertainty is never very good. But I mean, for me, price is not a concern.
They are pretty high. Expectations are that they would stay stable over the next — for the next quarters.
And in an environment, again, where the economy, generally speaking, and the demand in China specifically is not very high, so having this kind of price with the current situation in channel is a very positive news. And I hope I will drink one again next quarter.
Levi Spry
Okay. And maybe just coming back to the volume question. So FY ’24 production levels. When you talk to customer demand profile, I imagine it’s up 5% to 10%. So just pushing on Dan’s question now, what third-party pathways are open to keep your production flat to slightly higher when Kalgoorlie can take some extra time to ramp up?
Amanda Lacaze
Sorry, Levi, I’d say we’re not — we would not be selling concentrate to anyone else for processing. It’s not part of our planning.
Operator
Our next question comes from the line of Reg Spencer of Canaccord.
Reg Spencer
For some reason, the system didn’t record me I putting my hand up. But all the other questions have at been answered by some of the other guys, so I’ll wait my turn and give it back to the moderator. Thanks.
Jennifer Parker
Okay. Thanks, Reg.
Operator
Our next question comes from the line of Regan Burrows of Bellpotter.
Regan Burrows
Congratulations on the results. Just a couple of questions from me. First, sort of changing tacks the questions answered before. But just on the tax side, obviously, you recorded $20 million in tax expense this half. I understand you’re sort of still under the pioneer status in Malaysia, but perhaps you could just sort of elaborate on how we should sort of view this going forward?
I know that’s sort of like a 12% effective tax rate. And I’m sure there’s some transfer pricing going on in the background, but just anything we can sort of get out of that, if possible?
Amanda Lacaze
Okay. So my colleague sitting on my left is just going to shimmy on in to screen, and that’s Gaudenz, our CFO, and he’s going to talk to you about tax.
Gaudenz Sturzenegger
Yes. So on tax, I think, the overall situation hasn’t really changed. I think regularly, we do get these questions. Malaysia still has the pioneer status, which is running until early ’26, so that’s one element. The other element is obviously the Australian tax situation.
And there in FY — or related to FY ’22, we basically used up the tax losses carryforward. So I think there is a small tax — actual tax payment coming through related to FY ’22.
And going forward, I think the big question here, obviously, is the commissioning of the Kalgoorlie facility. And if that’s coming through as planned, we will have a pretty big taxes going forward. I hope that answers your question.
Regan Burrows
Yes, it does. And perhaps just going back to, I guess, the stockpiling questions. You sort of elaborated that you’re going to be sort of keeping inventory at various stages along the on the way. Are you sort of anticipating any, I guess, divergence between production and sales over this next 6 months? Or is it mainly going to be in those precursor products.
I know it’s sort of been partly addressed previously.
Amanda Lacaze
Yes. Look, that’s a decision that we’re going to have to make as we move through the next 4 months, whether there is a divergence between production and sales. As I think, most of you would know, we’ve always been in a happy position and continue to be today of being able to sell everything that we produce.
But choosing how we manage our finished goods inventory, if we are not successful with the appeal, which by the way, I still think that we have strong grounds for appeal, and I remain very optimistic on that basis. But there may be — we may choose to have a divergence between production and sales. We will see — we will make that decision closer to the date when we have more information on the likely position going forward.
Regan Burrows
Certainly. And just perhaps one more following on from that. You mentioned previously that, obviously, there’s quite a substantial economic contribution to the Malaysian government of you operating LAMP. Just curious if there is a closure of cracking and leaching, are you sort of expecting to reduce head count because of that? Yes, just sort of curious as to that.
And then I guess given you’re still under the tax pioneer status, does the Malaysian government really lose anything if you were to sort of close cracking and leaching?
Amanda Lacaze
Sure. I thank everybody understands the international economic conditions are problematic for many areas at present. As Irma said very clearly Malaysia can’t rely on oil and gas forever. And Malaysia has a front-foot position as far as the new economy is concerned because the only operating rare earths processing separation plant in the world outside of China is sitting in Malaysia.
And so the opportunity for Malaysia to develop both upstream and downstream is really substantive with — just with Lynas Malaysia, I was disappointed to hear the minister say there’ll be a few jobs lost. It’s hundreds of jobs potentially, which is both in the Lynas facility, the asset supplier who built their plant to supply Lynas, the jobs in the community. We have big contracts with local engineering firms and the scaffolders, sort of the thousands of direct and indirect jobs associated with this. It will be a serious issue within the Kuantan economy and the Pahang state economy. And we spend well over MYR 700 million a year in Malaysia.
And probably lose about 1/3 of that — Malaysia will lose about 1/3 of that.
So we are a significant economic contributor to Malaysia today. If Malaysia chooses, we provide a foundation for economic growth both upstream and downstream. And that really is the message that we’re taking to government at a time when it does matter that people have jobs and they have well-paid jobs. You know our people earn about 4 clients the average salary in Kuantan. And that’s not because we overpay.
It’s because they are skilled roles. And so our message is you don’t have to choose between economic growth and safety. The safety case is proven, has been proven for many years. Now just simply take advantage of the economic value, which is offered to the capture by Lynas.
Operator
Our next question comes from the line of David Deckelbaum of Cowen.
David Deckelbaum
I wanted to just ask a couple more questions about the elephant in the room. So I guess in the published materials, you’ve talked about being, building inventory at all stages to assist in meeting customer requirements during the transition period. It sounds like that’s going to be a balance of building inventory versus production during this period of time.
In addition to that, I think there were some news that came out of Malaysia that suggested you could perhaps continue the cracking leach, there was a contingency that you would remove the post-cracking leach residue immediately. I know this came up about a decade ago, and it wasn’t deemed feasible at the time. I suppose, if that was a path forward as a bridge until Kal was fully ramped, is that even possible just given concentrations of thorium and uranium and the residue piles post cracking and leaching?
Amanda Lacaze
So we investigated this previously. No, we don’t believe that it’s feasible and it is not actually about the radioactivity. The residue from cracking and leaching has radioactivity, which is analogous to the level in the phosphate fertilizer. Phosphate fertilizer gets shipped all over the world without any problems. It is worth noting that the material that we ship from Mt Weld to Malaysia does not have to be signposted as radioactive until it will arise in Kuantan simply because that’s a decision that the Malaysian regulator has taken.
So it is — the shipment of residues out of the country actually has nothing to do with the radiation safety case. The residue is about 45% water. As everyone would know, that’s quite a difficult sort of material to ship. But the fundamental thing is that international convention on this is crystal clear, and the international convention is that the country that gets the economic benefit of processing also manages the residue, just like Malaysia does for other imported materials, which produce radioactive or other types of industrial residues.
So it is not, in our view, an environmentally responsible thing to move these. And you saw the diesel that will be used in the movement, and it is highly problematic how you would move something that’s 45% of water. It doesn’t mean that we won’t look at it again, but we have looked at it extensively previously, and it has not been a feasible option.
David Deckelbaum
Appreciate all the details on that, Amanda. It sounds like a lot of ESG circularity. My second question is really just on, when you take a step back, obviously, this was the original expectation of the licensing agreement. And obviously, Kal was being constructed to satisfy those conditions. So from a very high-level view, I guess, how much of a timing mismatch is there at this point versus your original plan of when you would like to have a Kal fully ramped?
Amanda Lacaze
So if we take a really big step back, the idea that we would have to shut the cracking and leaching facility in Malaysia was a confection of the minister who was in charge of this regulatory authority in 2019 and early 2020. We had 4 operating licenses issued prior to that date, none of which included the 4 clauses which we are appealing at this stage. So the proposal, this is some sort of just continuity in terms of regulation is misleading.
So when we look at this, the regulator has always had a very clear view of how this material can be managed safely. And we have always complied with the regulator’s requirements. When we first announced Kalgoorlie, yes, it was pure growth. And then we had the conditions, which were applied in March 2020. The timing of those had no direct relevance to any analysis of how long it would take to stand up a facility of this size.
Once they came in, we had to revisit and significantly upscale the Kalgoorlie facility from wanted to had originally been planned at when we were looking at this growth capital. So our very regional plan on growth capital, we were looking for it to be operational in 2025. Clearly, we’ve brought that forward.
David Deckelbaum
And just the last one on me is that you can confirm that the view of getting the 12,000 tonnes a year of NdPr oxide sales does not rely on the ability to crack and leach in Malaysia?
Amanda Lacaze
We will have to continue to upgrade Kalgoorlie if we can’t run our cracking and leaching facility in Malaysia.
David Deckelbaum
Got it. So that would just be, you hit the same volume targets, but perhaps at a higher cost?
Jennifer Parker
Yes, we’ll find ways to continuously optimize. But then probably almost under any scenario producing anywhere outside of Southeast Asia will bring additional costs.
So just checking, do we have many left in the queue? We’ve just gone past the hour.
Operator
Yes, there are two more. And the next question comes from Al Harvey of JPMorgan.
Al Harvey
I guess you pretty conclusively rolled out third-party tolling of your concentrates and I think you kind of alluded to the fact that there’s not lots of material out there. But is there any MREC out there that could feed Kuantan, and I guess more broadly, just thinking you’ve outlined demand on Slide 8, but what are your broader views on supply? Do you see a structural deficit near and long term? And are there enough projects out there to balance that growing demand?
Amanda Lacaze
There is no MREC market. So there is no one selling MREC today. And life might be a bit easier as they were, but there isn’t. Would we think that some of the projects, which currently scope to produce separated materials might be better off focusing on at least moving through those first 2 stages and producing an MREC would be a good idea, and we continue to offer that to some of the junior projects that we would be happy to agree sort of offtake arrangements because we will have the opportunity to process downstream in Malaysia and also the U.S. facility when it comes online.
Are there enough projects? Well, there’s enough projects. Are there enough projects that have some reasonable chance of success? Maybe a little more problematic. It’s — I’ve said this many times, it’s not for the faint hearted.
And it’s not like this is readily accessible technology like if you want to manufacture ammonium nitrate and you can buy your equipment and basically, your instruction manual pretty much off the shelf. This is much more complex than every ore body offers its own challenges. So there are enough projects. Do enough them got really high success prospects, I think, that we’ll have to watch that as the market develops.
Pol, I’m not sure if you wanted to add anything to that.
Pol Le Roux
Well, only one point, MREC is produced in China, but it’s clearly prohibited to export MREC from China. So there is no MREC accessible from China. No one in the world is producing MREC except a very small factory for very small quality that is energy shown that is supplying Silmet in Estonia. That’s it. That’s the MREC.
And so comes in Russia. So that’s — I forgot that there is smoke in Russia, but we not — we won’t go for a for obvious reasons.
Al Harvey
Yes. And maybe just one last quick one just on the U.S. facility. Obviously, you mentioned that activities associated with the site acquisition nearing completion. Can you just kind of step us through what exactly that means?
And I think on the last call, Amanda, you mentioned that CapEx inflation had been quite strong in the U.S. How are you thinking about, I guess, those are — exactly how that material could — sorry, I lost my train of thought, but how is the U.S. plant running at the moment?
Amanda Lacaze
Okay. So when we’re talking about acquisition activities, in addition to just simply identifying a site, which is feasible, we actually have to engage with local and state government and otherwise. So when we talk about the actives associated with finalizing the purchase of that land, it’s all of those things. I mean, running a sale and purchase agreement for attractive land is not that complex but making sure that we dealt with all of the other matters takes a little bit more time.
In terms of sort of detailed engineering design, project management, project costings, just like with Kalgoorlie, it’s a process of continual optimization, and we believe we have a strong business case. And once we’ve taken that through all of its various stages, we will properly disclose it to the market.
Operator
Our next question comes from the line of Paul Young of Goldman Sachs.
Paul Young
Just two quick ones on the numbers themselves. This might be questions for Gaudenz. But just on the revenue you actually restated your revenue downwards by $30 million relative to the 2 quarterly revenue. Now I see there’s a revenue adjustment in the negative $9 million. So I guess the question is, has there been some quotational pricing or original pricing adjustments, I’m just trying to understand the differences in the revenue.
Amanda Lacaze
Sure. Thanks, Paul, and I’ll take it first. And if you need any more detail Gaudenz can Note 6 talks to trade and other receivables, so yes, as you would know, being in the resources industry, there’s often a lag between the quote and the settled price. In this instance, we had some of that actually took us across the end of the year, and that’s the adjustment which has been made.
Paul Young
Okay. That’s good. And then last, just on the start-up of Kalgoorlie. I mean we’ve seen — you see with every project and to start-up a number of costs reflecting — taking on fixed costs early. Just from a modeling perspective, and I know Gaudenz has said in the past that Kalgoorlie will be higher cost than the cracking and leaching facility in Malaysia.
But how should we think about, from a in perspective, the start-up costs, et cetera, in, say, the first 6 months doing ramp-up?
Amanda Lacaze
Yes. You are seeing some of that flowing through, as I said, into the current costs. As we look at — we’ve already got the operational leadership team in place in Kalgoorlie. In Malaysia, we will need to have some transition, and we’ll do it with contractors sort of backfilling as we move some of our cracking and leaching people into the MREC facility. So we do see that, and there will be some other additional costs associated with Kalgoorlie.
I think it may be best to offer a call with Gaudenz to sort of talk about that in a bit more detail because probably not going to work on — with the large group here. But we do see in the final quarter of this year that we will continue to look at some operational cost increases, which are associated with the early stage ramp-up of both of those facilities. appreciate it.
Operator
Our final question comes from the line of Trent Allen of CLSA.
Trent Allen
Sorry, I put my hand down before — after all your ramp-up details. This is kind of an afterthought. But it’s probably yes, no, maybe, so let me take a second.
Now at the moment, if you can’t get the changes you want in Malaysia, you’ll sort of finish up with a political bottleneck on your production. Is there a long-term argument for continuing the current flow of IP and people from Malaysia to Australia, just rebuild the line up entirely in Kalgoorlie and sort of go around the problem?
Amanda Lacaze
That’s a very large question, Trent. I think that we have $1 billion on the ground in Malaysia and walking away from an asset, which is operational and efficient and which has a lot going for it other than every now and then some politics. As I, even as I think about my now nearly 9 years working in the company, most of that time has not been spent on politics. We remember those times because they’re so sort of high pressure. But most of the time, we have simply focused on operating a complex plant efficiently.
And from where this company was a decade ago to where it is today, our knowledge of that facility and our ability to operate that facility is light-years part and the quality of our people and our commitment to our people is rock solid. I don’t think there’s any scenario under which we would willingly walk away from the investment we have on the ground in Malaysia. Are we able to build out the Kalgoorlie facility to do more than simply the cracking and leaching phase? Yes, we are, thank you.
Operator
Thank you. At this time, I would now like to turn back to Amanda for closing remarks.
Amanda Lacaze
Well, look, once again, thank you, everybody. And for the analysts, I know that both Daniel and Gaudenz remain open to having further discussions on many of the model inputs. We still are managing a lot of potentially different scenarios in the business. And I can assure you and all of our shareholders that we understand them very clearly. And we have a very clear focus of the skills and capabilities required to come through to a successful outcome.
So thanks for your time, and I’ll see some of you over the next few days and some over the next few weeks, I guess.
