Lynas considers legal action after Malaysia imposes new conditions

Lynas Corp said on Wednesday it was considering taking legal action against the Malaysian government over its decision to impose tough new conditions on its licence to operate in the country. 

The stand-off between one of the world’s only rare earths suppliers outside China and the new government in Kuala Lumpur caused shares in ASX-listed Lynas to fall by a quarter when the market opened. 

“This appears to be policy based on politics, not policy based on science,” said Amanda Lacaze, the Australian-listed miner’s chief executive. “However, we are confident we are well placed to manage potential changes and our long-term investment thesis remains strong.” 

Lynas said in a statement it would consider all options, including legal action. 

The review of Lynas is the latest reassessment of projects launched under Najib Razak, the former Malaysian prime minister, by Mahathir Mohamad, the new prime minister. Mr Mahathir has criticised Mr Najib for poor governance amid the scandal surrounding the state investment fund 1MDB, from which an alleged $4.5bn has gone missing. 

The US, Japan and other western nations consider the Lynas plant in Kuantan, Malaysia as strategically important because it is one of the few suppliers of processed rare earths outside of China. Rare earths, a group of 17 elements, are widely used by the electronics and oil and gas industries. 

They are also critical for magnets used in wind turbines and electric cars. Rare earth demand is expected to increase more than 8 per cent this year due to rising sales of electric cars, according to consultancy Roskill.

Late on Tuesday Malaysia’s ministry for energy said in a statement it would impose two new pre-conditions for Lynas’s licence renewal in 2019, including that the miner must export all the radioactive waste generated by its A$1bn ($731m) processing plant in Kuantan. 

The ministry said it was concerned with the risk from the accumulation of 450,000 tonnes of low-level radioactive residues without a viable solution to manage it.

Lynas has been the subject of a review by a parliamentary committee over its radioactive waste management practices and its impact on the environment. The company said the committee’s report found its operations were “low risk” and compliant with applicable laws.

But the ministry pointed to increasing risks to the local community as the amount of waste residue grew at the Kuantan plant, which has been in operation since 2012.

Dylan Kelly, an analyst at CLSA, an investment group, said Lynas would have to continue to operate under political uncertainty but added that the cost of sending the waste back to Australia should not be insurmountable. 

“The cost impact should be neutral due to the rehabilitation bond already paid by Lynas. The question is whether the waste material can be shipped back to Australia in time to meet the September 2019 licence renewal,” he said.