Tuesday, 3 July 2012

Nick Curtis, Lynas Corporation gagged by Social Media

Lynas Corp. (LYC) Chief Executive Officer Nicholas Curtis said he underestimated the power of Facebook and Twitter when his mining company decided to build the world’s biggest rare-earths plant in Malaysia. Lynas is now counting the cost as thousands of tons of unprocessed raw materials pile up at its Mount Weld mine in Western Australia while it waits for a promised refining permit. Local residents, worried about possible contamination from the Pahang plant, have used new media to rally local and foreign opposition to the facility.

In hindsight, “I’d have dealt with the emerging community debate by the social media a little bit more intensely, a little bit earlier,” Curtis said in a phone interview from Sydney on June 29. “We probably didn’t recognize the power of the social media to create an issue.”

There are more than 12 million Facebook users in Malaysia, according to Facebook Inc., highlighting the importance of social media engagement in Southeast Asia’s third-largest economy. Lynas, which was partly lured to Malaysia by 12 years of tax-free status, doesn’t have any other means to refine until the plant opens, nor a backup plan to process its raw materials elsewhere, Curtis said. Lynas has lost half its value in the past year in Sydney trading.

The hold-up has repercussions for clients that planned to use its rare earths in hybrid car batteries and advanced magnate technology, he said. Some prospective customers have reversed plans to open factories near the Malaysian plant, instead opening factories in China, which currently supplies 90 percent of the world’s rare earths, Curtis said. He declined to name companies for confidentiality reasons.

‘Money and Anxiety’

“These delays are costing us a significant amount of money and anxiety with our customer base,” said Curtis, declining to provide client names. “They are monitoring very carefully.”

Rare earth minerals, 17 chemically similar elements, are used in Apple Inc.’s (AAPL) iPod music players, in addition to flat- screen televisions, magnets and hybrid cars. The materials are also used to make goods such as Boeing Co. (BA) helicopter blades, Nokia Oyj (NOK1V) mobile phones and Toyota Motor Corp. (7203) wind turbines.

“The destabilizing of our licensing has in fact destabilized their commitment to investing downstream in Malaysia,” Curtis said. “That’s bad for the Malaysian economy in the longer-term.”

Protests, including a march on Parliament, escalated following leakages at nuclear power plants after Japan’s earthquake and tsunami in March last year. While technologies used in rare-earth processing are different, local residents and non-governmental organizations are concerned about the risks of radiation and what will happen to the waste.

Lobby Campaign

Save Malaysia, Stop Lynas!, a lobby group, has more than 40,000 followers on its Facebook page. It also uses a blog site and Twitter Inc.’s blogging service. Other sites sprang up as the campaign became known nationally and abroad.

“Malaysian national media is controlled by several political parties,” said Jade Lee, a Malaysian environmental consultant and protester now based in Melbourne. “Social media doesn’t have that level of control so people can speak freely and share their views.”

The Australian miner has filed defamation suits against Save Malaysia, Save Lynas! and online news portal Free Malaysia Today, according to a statement from the company.

More Conditions

Maximus Johnity Ongkili, Malaysia’s minister of science, technology and innovation, rejected an appeal by protesters last month, though set additional licensing conditions. This included requiring Lynas to submit plans to immobilize any stored radioactive residue and an emergency response proposal for any dangerous dust accidentally released into the air.

The miner still needs to appoint and pay for a third-party assessor to continually monitor the plant, Noor Hasnah Mohamed Khairullah, a special adviser to the Atomic Energy Licensing Board, told reporters on June 28.

Lynas must also present an acceptable plan for a permanent disposal facility for radioactive residue within 10 months of a temporary operating license being issued, she said. If none is approved, Lynas would have to export any harmful waste, Noor Hasnah said. A temporary operating license was awarded in February subject to conditions.

“Lynas will only be allowed to bring in the rare-earth into Malaysia after the temporary operating license is issued” and conditions are met, she said. “It’s in their best interest to do so as soon as possible. We don’t impose any deadline.”

Radiation from the Pahang project should be “low and safe,” Higher Education Minister Mohamed Khaled Nordin reported to Parliament on June 19 after heading a select committee enquiry into the issue.

Costly Delays

Every month of delay costs as much as A$10 million ($10 million), Curtis said. Lynas has seen its shares tumble 51 percent in the past year in Sydney, tracking a 62 percent drop in New York by Molycorp Inc. (MCP), the U.S. owner of the largest rare-earth deposit outside of China. The Australian miner gained 1.8 percent to close at 86 Australian cents today.

Mining stocks have dropped 32 percent in the past year, according to the Bloomberg World Mining Index, as concern over the slowing global economy curbed demand for raw materials. Average prices of rare earths have fallen more than half from record levels in 2011 as consumers reduced purchases or sought alternative materials.

The U.S., the European Union and Japan asked the World Trade Organization to form a dispute settlement board last week after complaining about a move by China to limit rare-earth exports. China has said the restrictions are to conserve the materials and protect the environment.

Rare Commodity

Lynas’s production delay exacerbates difficulties some global manufacturers have experienced in sourcing the commodity.

“It reinforces the need for finding a solution outside of China,” Curtis said. “We are part of that market-based solution.”

The Malaysian refinery would be capable of processing 22,000 metric tons a year should a second phase be approved and completed, Lynas said Nov. 16. The company plans to spend 2.5 billion ringgit ($788 million) on the two phases, Mashal Ahmad, managing director of the miner’s Malaysian unit, said April 20. At the time he also said the first phase of the plant would be start a fortnight later.

Malaysian Prime Minister Najib Razak has sought to boost investment as he strives to shore up confidence in the government before elections due by early 2013, unveiling in 2010 an Economic Transformation Program that identified $444 billion of private-sector led spending projects ranging from mass rail to oil storage for the current decade.

The nation is set to reach a foreign-direct investment target of 33 billion ringgit this year, International Trade and Industry Minister Mustapa Mohamed said May 29.

‘Special Case’

The Lynas experience “may make potential investors rethink their investment plans or existing investors to reassess their positions,” said Azrul Azwar Ahmad Tajudin, chief economist at Bank Islam Malaysia Bhd. in Kuala Lumpur. “They should understand that Lynas is a special case and not an ordinary type of FDI. The project entails serious implications for the environment and people’s lives.”

Najib has supported the plant, in his home state, though has said it must meet all safeguards. Opposition leader Anwar Ibrahim said on May 30 he would review any license granted to Lynas if he comes to power.

The miner agreed in February to sell $225 million of convertible bonds to help fund its Malaysia project. New York- based Mount Kellett Capital Management LP agreed to buy $50 million of the bonds initially on behalf of funds it manages and the balance once conditions are met, the miner said in a Jan. 24 statement.

“Lynas is in a strong financial position at the moment and capable of working through the issues,” Curtis said.

To contact the reporters on this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net; Soraya Permatasari in Melbourne at soraya@bloomberg.net

To contact the editors responsible for this story: Lars Klemming at lklemming@bloomberg.net; Rebecca Keenan at rkeenan5@bloomberg.net


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