Lynas Corporation Limited (OTCPK:LYSCF) Q4 2020 Earnings Conference Call July 21, 2020 9:00 PM ET

Company Participants

Jennifer Parker – IR, Cannings Strategic Communications

Amanda Lacaze – CEO and Managing Director

Pol Le Roux – Vice President, Sales and Marketing

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Conference Call Participants

Dylan Kelly – Ord Minnett

Daniel Morgan – UBS

Reg Spencer – Canaccord

Jack Gabb – Bank of America Merrill Lynch

Andrew White – Curran & Co.

Matthew Chen – Foster Stockbroking Pty Ltd.

Trent Allen – CLSA

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Lynas Quarterly Results Briefing Conference Call. At this time, all participants are in the listen only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

I’d now like to hand the call over to Lynas. Thank you. Please go ahead.

Jennifer Parker

Good morning, and welcome to the Lynas Corporation briefing for the quarter ending 30 June, 2020. Amanda Lacaze, CEO and Managing Director of Lynas, will be presenting the update today. And she is joined by Gaudenz Sturzenegger, CFO; Andrew Arnold, General Counsel and Company Secretary; and Pol Le Roux, Vice President of Sales and Marketing.

I’ll now hand over to Amanda Lacaze. Please go ahead, Amanda.

Amanda Lacaze

Good morning everybody and welcome from the heavy industrial zone at both Bay in Sydney. Up until about five minutes ago next door, they were jackhammering tiles, but lovely, lovely cooperative workers who said they’ve taken early lunch, so that I could do this call without having the background noise. As always, I will assume that you have read the report and I will make a few opening comments and then open up for questions.

So, like just about every other business in the world, the June quarter was a challenging quarter for Lynas. For us, it marked the first time that we had negative operating cash flow since the end of 2014. And that’s quite heartbreaking for many of us who have been involved in the Lynas journey over those years.

But as always, the health and safety of our people and communities is our number one priority. We are very fortunate that we are operating in two jurisdictions, where the performance in — with respect to the pandemic on a global scale has been really excellent. Both Australia and Malaysia have recorded very most fatalities from COVID-19 pandemic and the responses have generally been very positive. In Malaysia, we are particularly alert to compliance with government regulations, which certainly have assisted in keeping our people and our community’s safe.

So, yes, it was sad to see that we had a negative cash outcome, but on the positive side for the quarter. The first thing, clearly, we implemented the COVID-19 protocols early and with good effect and that is at both sites. And we’ve included previously some of the pictures of the way that we’re managing there. Certainly, we’re managing with lower loads. We only operate our charters out to five here in Australia at 50%. We’ve reduced to 50% buses out to size as well.

Our people in camp have been absolutely compliant with all regulations. We’ve stayed clear of sort of the indigenous community, whose health is absolutely a priority for us, including the way that we have managed those on our workforce who are indigenous, when they return to community.

In Malaysia, similarly, we have temperature checking on site. We have physical distancing at all times. We’ve taken a lot of our meetings outside rather than inside to facilitate sort of improved outcome.

Also on the positive side, I’m confident that we have managed the extended shutdown well and as we’ve identified in the report, we were shut down completely — the temporary shutdowns for COVID, number 44 days.

Of course, once we restart with operations, it can take — well, to some elements, it takes almost three weeks to get from the front end to the back end of the plant, but certainly, it takes as new days before we have materials flowing through the system through to finished product.

But during that time, we were able to avoid many costs within the business, including our most significant inputs. And of course, as we look at this quarter’s results, we’re recording a cash outcome today, we do have cash costs, which are related to March production numbers, where we have paid those invoices during April or May.

During the time, we determined very early on that we would use this time wisely. We’ve diverted people to productive activities. We’ve completed projects that we would have otherwise had to contract out.

And we’ve been able to use our own people to complete those improvements and development projects and reduce the time to properly revisit all of our operating and cost parameters. And within the context of expecting that we will be running at lower than Lynas net rates for an extended time, we really have looked at all of those operating and cost parameters to ensure that we are capturing all opportunities.

We started up in good order, and we are running about 75% of our plants. So, just over two times out of four, three and six, five trains [ph] and depending upon product mix six to seven of our tunnel furnaces and we are producing consistently within the 70% to 75% production rate.

During the quarter, also on a very positive note, the Lynas 2025 project teams continue to make very solid progress, including, as we announced last week, we placed our first order for our longest lead-time item related to the Lynas Kalgoorlie project.

So, just a few words in terms of outlook. As we’ve indicated, the outlook in terms of both demand and price is, of course uncertain, because we had an uncertain time, but feedback from our customers indicates that they expect some improvement in the second half. And I think as most of you know we are primarily exposed to the automotive industry and while the automotive industry in total is significantly down on what it was pre-COVID, electric and hybrid vehicles are holding very well and of course, they are primary engines, no pun intended for our growth.

We can operate efficiently at 75%. We can capture most volume cost efficiencies, at 75%, and we are operating at 70% to 75% level. And of course, everybody is always very interested in the continued governmental focus is helpful for our business. However, we would make the point as we have made with many governments that ultimately, it does need to be matched by customer behavior.

And our view would be that the COVID-19 pandemic has been a stark reminder to many that outsourcing all of manufacturing to other jurisdictions is may not always be a good idea. We remain very excited about our progress with Lynas 2025. The teams they’re actually having a pretty good time.

So, with those comments. I’m happy to open up for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instruction]

Thank you. Our next telephone question is from Dylan Kelly from Ord Minnett. Dylan, please ask your question.

Dylan Kelly

Yes. Good morning, Amanda. Three questions for me, just firstly, on production and the limitations here in Malaysia about increasing them beyond say, that 70%, 75% level. Could you just walk us through what are the constraints, is it you concentrate import limit for this calendar year, is that going to come into effect, is it demand driven or is this purely an operational constraint in terms of amount of people you can have in the control room and operating the various pieces of kit that you’ve got?

Amanda Lacaze

Thanks Dylan. This is a demand-driven decision.

Dylan Kelly

Okay. So, you put that statistic in the releasing a 1,000 kilos was it import restraint from a slight decrease in automotive demand?

Amanda Lacaze

So, I think the more work for us we had the ability to be able to flex our production, up and down. And so, at present, as we’re coming out of all the various shutdowns at the rate that we’re at, at present, we can meet customer demand and refill only slightly depleted supply chain.

As the market comes back, we have the ability to bring back production and even this year — this calendar year, we wouldn’t see that compromising our concentrate import license within Malaysia.

Dylan Kelly

Okay, fair enough. Just second question regarding geopolitical events. So, what is it last week, we had the Chinese government saying, we’re going to restrict supply of rare earths to likes of Lockheed Martin. Just want to get your sense of an understanding about what that means in terms of NG’s demand, what that means for your business? And in particular, does this accelerate the U.S. political shenanigans from sort of slowing things down?

Amanda Lacaze

So, I think Dylan, it’s really very interesting turn of event. A lot to use the word that is do rigor these days, it’s not unprecedented. We have seen in the past couple of months, the Chinese government prepared to take action in the unrelated areas for — to deliver diplomatic messages. And here in Australia, that’s been particularly relevant with the barley tariff decision and also with the restricting imports of meat from particular habit trials. And so the ability to leverage their strong industrial position to deliver political messages has certainly been something which has been evident.

This is maybe the first time that I’ve seen that they singled out a specific company. And I would expect that this would be something to which all western news of rare earths are highly alert.

So, the actual consumption by Lockheed Martin of rare earth materials is a relatively small part of material. And but that’s the same for most uses of rare earth. It is — it forms a relatively small part of their bill of materials, but a material element because without it, there are many things which will not be able to be produced.

We have previously had discussions with various players in this sector and we are aware that some of them have already switched parts of their supply chain to source out of Japan, for example, rather in China, and in terms of its effect on our demand directly, it is probably relatively small.

However, in terms of once again, reminding the market of the risk of concentrated supply chain, no matter where that concentration is. I don’t really want to get into the politics totally; no matter where the concentration is — carries it.

Dylan Kelly

Okay, that’s clear Amanda. Just in terms of what this means for your acceleration of the Pentagon discussions sort of DoD? It appears that there’s an article out a few years ago from Reuters saying that the DoD’s resumed funding for the projects, would that be perhaps an indication of the change in sentiment towards the supply chain risk in the U.S.?

Amanda Lacaze

We don’t comment on speculation by media or third-parties and we certainly will, as always, keep the market informed. We continue to work with all stakeholders in the process. But I would say, as I think I’ve said several times before governments move at the rate that governments move at.

Dylan Kelly

Understood. So, I suppose there’s more of a yes or no, like have you received notification yet from the DoD that work will resume?

Amanda Lacaze

So, we continue to be engaged with the relevant stakeholders in the process. And we certainly have a very strong ethos within our company. And it is the thing which has led to our success, that we that we will be successful independently of external influencers, where we can harness them to the benefit of our company, then we will do so.

But we are able we are progressing with all of the work which is required to be able to stand up a heavy rare earth separation facility and that remains a key part of our strategic plan going forward.

Dylan Kelly

Okay, perfect. That was last point and I’ll pass it along. Thanks Amanda.

Amanda Lacaze

Thank you.

Operator

Our next telephone question is from Daniel Morgan from UBS. Please ask a question, Daniel.

Daniel Morgan

Hi, Amanda and team. Just wondering given all the strategic interest in the rare earths sector, et cetera. I’m just wondering if you are hearing of any movement on magnet making facilities outside of China and Japan. Is there anyone is bankrolling downstream facilities that might enable you to have more customers? Thank you.

Amanda Lacaze

Thanks, Daniel. I might let Pol contribute to this as well. At this stage, we’re aware of consideration, but we’re not aware of any firm investment. Pol, would you want to add to that?

Pol Le Roux

Yes. Good morning. Actually, there is no — no plan that is confirmed or moving forward. Just as a reminder, before the crisis, the total consumption of NdPr outside China was around 65%, of Lynas production capacity. So, the challenge was already to develop further capacity downstream of magnet making, motor making, and with the current economic situation, I think there is even more uncertainty on this. So, I don’t think there is a lot of push for plans for downstream investments outside China at the moment.

Daniel Morgan

So, does that mean that the ex-China magnet making capacity, I mean, it’s going to center in Japan. Is that right?

Amanda Lacaze

I don’t think that that’s necessarily the outcome. As I said and to Pol’s point not — nothing which is confirmed, at this stage, but given all of the various considerations, there are many who are thinking about it. There are a few who may be studying it. But we would not see this as being something which is going to take — take root in the short-term.

But I think that as we continue to have the focus on development of non-Chinese supply chains that the chances that something might come to provision, we will continue to improve.

Daniel Morgan

Sure. And when — you obviously are operating at less than full capacity at the moment and it sounds like that’s discretionarily at the moment due to demand. I’m just wondering how you’re going to think about that through the rest of the year? I mean in the past couple of years, you would have liked to produce more, but you had licensing constraint in Malaysia and you’re trying to get that obviously changed.

But towards the end of this year, would you look to produce up to your constraints in order to have inventory? I mean, obviously, that will cause you to fund that inventory, but — or would you look to produce in line with demand? Just wondering how you’re thinking about that?

Amanda Lacaze

At this stage, we’re planning to be prudent in our approach, which means, yes, in line with demand, primarily. We are in uncertain times, as everybody knows and I think that making sure that we take actions which ensure that we continue to preserve balance sheet strength is really important.

And yes, so we — look, we will update it as things develop. A good thing for our business is that we do have the ability to flex that production. But at present, we would not be — we are not considering producing to inventory.

Daniel Morgan

Sure. And my last question just relates to how do I think about the financial implications of that regarding costs. So, most businesses have fixed cost leverage. So, costs that we’ve seen you demonstrate over the past few years when you’ve been operating at fuller capacity.

Just wondering if you could give some guidance on your fixed cost versus variable cost leverage? If you’re running at 75%, for example, will that mean you’re at 80% or 85% of normal costs? Thank you.

Amanda Lacaze

Okay. So, at 75% — 75% is actually very close to original main place capacity for the Kuantan plant. So, we had uplifted that with the Lynas NEXT program, but it is at about the original main place. So, therefore, we — as I said, we can capture most of the cost efficiencies. And one of the things that the team did a lot of work on was ensuring that as we restarted — we’ve restarted, we made sure that all of our reagent use, et cetera was at a minimum at design rates, if not better.

So, our expectation is that we will — if you look at our history, you will see that we have consistently improved our cost position, but there have been times where we would say that we were happier with sort of stability, reliability, and therefore, cost in the plant.

And we are very pleased with that at present on a unit cost basis and we would say that we can optimize most of our costs at that 75% rate. At 50%, it would be very hard. It would be very, very difficult. But at the 75%, we’re feeling pretty good because we’re only running three quarters of the plan.

Daniel Morgan

Okay. Thank you very much.

Amanda Lacaze

Sorry. So, maybe just to give you a bit more context Daniel just a little more. When you have a look at you sort of out — even our results in the last quarter, you will be able to see that we’ve been able to avoid most of the big costs in the business. So, when we talk about our fixed costs, say, for example, labor, we’re not faced with the same sort of overhead in terms of labor that, for example, other businesses are. So, they are — the variable costs, which was not your question, but the big contributors to our costs are reagents, energy, other utilities, and we are able to avoid those on a volume basis.

Daniel Morgan

Awesome. Thank you very much for the color.

Amanda Lacaze

Thank you.

Operator

Our next telephone question is from Reg Spencer from Canaccord. Please ask your question, Reg.

Reg Spencer

Thanks. Good morning, Amanda and team. I was just wondering if you could provide any comments on where your unsold inventory might sit and how that might relate to any plans to ramp up production throughout the back half of the year? Do you need to run at 75% capacity, is there any inventory that you can work down? And I guess as part of that question, how that might sit in the context of your comments around improving demand in the second half?

Amanda Lacaze

We never carry much inventory reach in NdPr. And today, we today, we are still not carrying much inventory on NdPr. The — and really the only inventory when you have a look at our sales, of course, in the quarter, they were low. There’s a number of things, of course, low production, but the fact that it was back-ended in the quarter.

And of course, there were fewer sailings boats within the COVID-19 environment, which just means that where we previously would always be able to optimize shipments to the end of the quarter that right now, we’ve got to be a little bit more choosy about when we book the ships. But we have very limited NdPr inventory and when I say that, I’m talking about that’s in a couple of hundred tonnes.

For our other materials, we also have limited inventory for SEG, but we have implemented a strategy on SEG now for, I think, about four years where we only sell it if it reaches sort of selling price that we’ve determined internally in the first instance. And then, of course, we have lanthanum and cerium stocks on sites.

Probably the biggest challenge for us will be cerium as we move forward. It’s used primarily in — the largest volume consumption is in catalyst for IT vehicles, which of course, have got some pretty serious demand issues.

But our production will — but our production rates will be primarily driven by NdPr demand and the work that particularly Pol and his technical team are doing on improving our range of lanthanum and cerium materials to include much more specialized products will also improve. And that’s really about making sure that we are a strong and profitable, rare earth company, not just an NdPr company.

Reg Spencer

Fabulous. Thanks Amanda. Just further on your comments about strengthening demand in the second half. And look, I know that you guys don’t like to publicly comment about what others are doing. But how do those — does that view on near-term improvements in demand set relative to recent news that the Chinese may look to or have lifted production quotas for the second half? And how that might impact pricing do you think?

Amanda Lacaze

Sure. So, it is — I think as we’ve always said, it’s a relatively small market and it is possible for it to be distorted by supply side decisions. However, our business is still primarily driven by demand side matters. And so, we remain very focused on, particularly the non-Chinese market and facilitating increased demand in those areas.

With respect to what happens with the prices of NdPr, of course, that is a key determinant of our success. On the other hand, we understand that we’re at presently are not the price leader in terms of setting at the price in the market.

So therefore, we need to build our own muscle, which is really around cost. And as we’ve demonstrated, we can continue to run our business even when prices are sitting at very low levels, and even when they’re at levels where many in the Chinese industry are not able to be profitable.

So, we think that we’ve developed sort of strengthen in terms of our cost base. But I’ve told you guys, I think, before Pol and Wayne, in particular, but sometimes I anticipate also at the beginning of every quarter, we have a bet on what’s going to happen with the NdPr price, and I don’t think any of us have ever got it right. So, that’s one of the reasons why I’m not going to speculate on that.

Reg Spencer

Understood. Just lastly, if we go back a couple of years ago, there was some interest due on the JARE, the facility that was deferred. Can you remind me when you might expect to pay that deferred interest? Or is that gets restructured as part of the broader restructuring of that facility?

Amanda Lacaze

Under the current facility, that is due — remind me, I think it’s October this year.

Pol Le Roux

Yes, that’s correct. October of this year. That’s the 2019 related interest, yes.

Amanda Lacaze

And does that — do you guys hold? Well, I’m not going to speculate on that right now, Reg.

Reg Spencer

Understood. That’s great. Thanks very much. Guys, I’ll pass it on.

Operator

Our next telephone question is from Jack Gabb from Bank of America. Please ask your question, Jack.

Jack Gabb

Thank you and good morning, all. Just two quick ones. Firstly, just following on your last comment, Amanda, when you said that many in the Chinese industries are not profitable. Are you able to put a sort of a percentage on that or the amount of sort of NdPr productions that you think isn’t profitable?

And then secondly, are you still expecting to give us an update on your funding gap or broader financing update in August? Thanks.

Amanda Lacaze

Okay, so to you first question, Northern Railroad is the largest railroads producer in the world. It turned into Mongolia and it has, we believe by far the best cost position. Lynas is the second largest railroads producer in the world that we believe based upon the evidence we have that we have the second best cost position. And that is partly to do with the jurisdictions in which we operate.

For example Malaysia is an excellent low cost environment. And partly to do with the quality of our resource, as everybody on this call knows that the less material you have to process the fewer costs you have and so the high grade nature of our mount weld deposit serves us very well.

So, I wouldn’t want to speculate in any more detail on others and of course, everyone can be profitable, if the price is sitting at let’s say RMB300 to RMB350 a kilo, which would be what we would think would be an excellent place for it to go because it’s still sitting in the RMB200s at present.

With respect to funding of the line is 2025 initiative, yes Jack, clearly as we look at this, in May last year, we identified that we move — we’re very confident of our ability to self-fund, particularly given the changes to the genre facility, the shutdown, combined with the fact that we expect that demand will remain subdued for some time. And the fact that we can’t just push the project out means that we are reviewing that position that and if we will provide further information on that probably we would expect sometime around about the time of our annual results.

Jack Gabb

Perfect, that’s all from me. Thanks very much.

Amanda Lacaze

Thanks Jeff.

Operator

Our next telephone question is from Andrew White from Curran & Co. Please ask your question, Andrew.

Andrew White

Hi there, Amanda and team. Just a question, I noticed in the quarterly about Mt Weld. And the halting the production there and it seemed it was in line with holding the production at the lamp. I just wanted to get an understanding on, are there any limitations on how much concentrate you can stockpile there or what’s the basis of holding the production there?

Amanda Lacaze

No, there’s no limitation to how much we can have on-site at Mt Weld. But this comes down to particularly as we went into this process. We didn’t know how long any sort of lockdown would be or otherwise, there’s no point building concentrate inventory. At some stage, we need to be consuming it. So, we built to a particular level.

And then we said, well, actually, rather than continuing to consume costs in producing more inventory at Mt Weld, it would be better to — to direct our resources there to doing projects that would otherwise cost us money because we would have to outsource them.

Mount Weld is really managed through this process excellently. I’m really proud of everybody in the company actually. But it’s a number of development initiatives that will cost us probably hundreds of, thousands of dollars to outsource, which we have actually been able to complete with our own stock.

Andrew White

Excellent. Okay. So, just on the back of that, is there any change in the frequency of concentrate shipments over this quarter, has that reduced because of a reduction in production?

Amanda Lacaze

Sure. Concentrate shipments are in line with the amount of material that we need to consume. Of course, we’ve built quite a lot of concentrate inventory in Kuantan, because we had to shut down.

So suddenly, and we had material on — on the water already and on the wall. And we were fortunate to be able to manage all of that very well with the Malaysian government approval for those movements; even during the most, strict is the movement control order period.

That meant we were able to avoid detention charges and those sorts of things. But we have consumed that material, and we are back in the business of fresh shipments now, and those shipments timed and in quantities, which are consistent with our production in Kuantan.

Andrew White

Excellent. Just on another issue, there was mention of supply out of China before. I was just wondering–

Amanda Lacaze

Sorry.

Andrew White

Can you hear me okay?

Amanda Lacaze

Yes, could you just ask again, I just missed it?

Andrew White

Yes, I was just — there was talk before on this call about production out and supply out of China with the new quotas. I just wanted to get some perspective from you as well about potential supply that’s coming online outside of China as well. Can you give us a bit of color on potential producers that are coming online or things that company, do you think will make an impact?

Amanda Lacaze

Actually, no, not really. I think I would make a few sort of general comments. I think most of you know I’m originally a marketer by trade. And when I went to university, I learned that the more competitive markets are the more they grow.

And they are more they are to be innovative. And so, it gives — it also gives those who are incumbent in those markets, the opportunity to prove how well they are, how good they are. And so for us, I actually have a full-time job being the CEO of lines, trust me.

It takes up most of my waking moments each day to thinking about it. And I don’t have time to spend, sort of understanding other people’s business as well as running our ones. So, no, I don’t really have any comment to make on other people’s [Indiscernible].

Andrew White

No problem. That’s all for me. Thanks very much.

Amanda Lacaze

Thanks Andrew.

Operator

Our next telephone question is from Matthew Chen from Foster Stockbroking. Please ask your question, Matthew?

Matthew Chen

Good morning, Amanda. Just wanted to clarify a couple of points, please. So I read that Mt Weld production being temporarily shut down during the period as you’d made a call on global concentrate inventory level. So — and having reached maximum target levels. Are you able to unpack that expand a little bit more on that, please?

Amanda Lacaze

I’m just realizing from your question that you’re probably reading the word global differently from the way that we intended it.

Matthew Chen

Yes, that’s right. Okay. So, I miss read that, have I?

Amanda Lacaze

No, no, no. We probably should have used a better word. Internally, we refer to our global inventory levels, which means our inventory levels within line–

Matthew Chen

Okay. I just wanted to say if — wanted to clarify if that was a comment on inventory that wasn’t enrolled by you?

Amanda Lacaze

No.

Matthew Chen

No, that’s fine.

Amanda Lacaze

We have a line item that we manage in our business called global inventory for concentrate and–

Matthew Chen

Yes, I remember, come across in one of your releases, yes.

Amanda Lacaze

Yes.

Matthew Chen

Okay. No, that’s fine. Okay. So, it’s an internal management decision based on your account levels.

Amanda Lacaze

Yes.

Matthew Chen

Okay, that’s fine. I did notice that a couple of questions back, you mentioned building the cost muscle and I wanted to reconcile that with comments that you’ve made in the past about pricing strategy. So, I mean, we can take it as read that’s the end they pay out pricing is subdued at the moment.

I just wanted to clarify like a thing in the past you’ve talked about some removed from the yoke of essentially commodity pricing. And I just wanted to get an update on that strategy essentially around that pricing, but also any specifics, I think there was, you might need to refresh me. There was the pricing mechanism for floor ceilings not across the whole volume bulk but across a lot of different products and for batches of quantities, is that right?

Amanda Lacaze

Yes, sure. So, if we think about this across about this across the product suite, NdPr used the metal making and magnets. The ability to — generate real either chemical or physical differentiation on that material is relatively limited. And so therefore, the sort of premium that we’re able to capture on that is going to be one which is either related to our non-Chinese status, reliability of supply or preparedness to hold the price for an extended period of time and so the concept which go into that are specific to those items.

So, floor ceiling is about giving price certainty in things like fixed price contracts for guaranteed volumes is really about supply reliability. But over time, even in very best of worlds, we would expect that we will still generally see that whilst we should achieve a price which is higher than inside China price and we always do as an average–

Matthew Chen

[Indiscernible].

Amanda Lacaze

Yes. That it will typically follow the shape of the end by time of pricing. So then we look at, therefore, how do we improve our margin as a business? Well, we improve our margin as business by increasing margin on some of our other products. So, heavy — we’re in the business of wanting to separate our own heavy railroad, not to satisfy government intention.

We’re in the business of wanting to separate our own heavy railroads because there is a margin to be had over and above selling our unseparated LPG compound. So, that’s one opportunity that we’ve got, and we’re significantly progressed on. The other is, we sell about 17,000 tonnes of lanthanum and cerium every year.

And if we able to improve the prices of those, so five years ago, a lot of the lanthanum and cerium that we produced was really not up we were very focused at that time on getting our plant right by producing NdPr.

And so we used to sell quite a lot of that product at say, $1 a kilo. Today, we produce it and we’re able to sell it on spec at a minimum with market price, but overtime lanthanum and cerium both give us real opportunity for both chemical and physical product differentiation. And our technical team has done a lot of work on this, and we know how to do it now. And our mix state is actually to put in place production capability to do that.

As you would know, when we’re talking about a big site like Malaysia, where we must be volume-driven, and we must hug out those NdPr tonnes. It can sometimes be more difficult to get sort of focus on sort of product differentiation. So, we’re considering how to execute on this. But technically, we know what we need to do.

Matthew Chen

Right, right.

Amanda Lacaze

And if you think about 17,000 tonnes, it doesn’t take much of a premium, an average premium across that to leverage a significantly improved outcome.

Matthew Chen

Absolutely. Yes, that’s right. And I think that’s something that, particularly on the cerium side, that’s something that Pol has been looking for a while now, hasn’t it?

Amanda Lacaze

This is Pol’s great passion. Pol have I got you a passion sufficient–?

Pol Le Roux

No, but excellent. I see that you joined the club of passionate people. That’s good.

Matthew Chen

That’s great. Thanks Amanda.

Amanda Lacaze

Thanks Matt. Hope you well down in that south of the border.

Operator

[Operator Instruction]

Our next telephone question is from Trent Allen from CLSA. Please ask your question, Trent.

Trent Allen

Good morning guys. Just a quick one from me. I think one of your next milestones over the next 12 months is starting the PDF in Malaysia. Can you give us any update on how that might be progressing in terms of the site? And remind us what the sort of permitting steps you might need to go through to hit that March deadline. Thanks.

Amanda Lacaze

Sure. Thanks Trent. So, you would have noted that in our March quarterly, we had made some relatively substandard payments as a result of concluding a turnkey contract solution with a local contractor in Malaysia. And those payments were triggered by meeting certain of the regulatory requirements and provide the basis for the development — the initial development of certain elements related to the site.

So, we haven’t identified sites, but it has been confirmed by the state government and now what we are engaged in doing is the various studies that need to be done on that site, whether they geotechnical, hydrological, et cetera and of course, like radiological. So, we are engaged in doing those now.

For us the great benefit is that we’ve been operating the storage facilities for our [Indiscernible] WLT materials now in Malaysia for seven years, so we have excellent stage available. And we expect to be able to progress through this stage in good order. And, yes, we’re confident that we will meet the license conditions as they specified at the end of February.

Trent Allen

Okay, great. Thank you.

Operator

And our next question is from Reg Spencer from Canaccord. Please ask your question, Reg.

Reg Spencer

Thanks. Sorry guys, just a very, very quick follow-up question. Amanda, could you tell us when we might expect some guidance as to when you’ll be able to provide some more details around the structure of the Blue Line JV expected scale that project and so on and so forth given those that media speculation about a resumption of their D funding process.

Amanda Lacaze

Reg, short answer is no. As you said, government move at this phase that government move at and completion of the JV or the commercial arrangement with Blue Line will be a factor of, where we finish with sort of the various discussions with government. I can only tell you that we will tell you when we know.

Reg Spencer

That’s okay. So, just so I understand that process, the structure that the JV is subject to whether or not there is some contribution from the government. And then the finalization of that JV will be subject to whether or not you’re successful in your discussions with government.

Amanda Lacaze

Yes, that is right. That sounds a bit more negative than it really is. And then we see that having — as we identified with the Lynas 2025 Plan originally, footprint in the U.S. will be a productive thing for our business, in particular some of — the specialty materials that we produce, but also, you know, we see that there is ready market for heavies and — they can cover by so — production from that facility a couple of times over.

So, but making the decision on exactly what the plant footprint looks like is going to be something that we are waiting on really seeing where customers end up with the tradition and that of course will then shape commercially how we approach it.

Reg Spencer

So, it sounds like that irrespective of where the — what role the government plays in terms of funding or part of it JV structure itself, it is certainly a project you continue — you’re going to continue to progress with, like I said, regardless of any government involvement?

Amanda Lacaze

We will be in the business of heavy rare earth separation. Timing of it may depend upon where the funding comes from, and location of it may depend on where the funding comes from.

Reg Spencer

Fabulous. Thanks again guys. Appreciate it.

Amanda Lacaze

Thanks.

Operator

There are no more further questions at this time. I’d like to hand the call back to Lynas for closing remarks. Please go ahead

Jennifer Parker

Terrific. Thank you all. Lots of questions today, very exciting and look forward to talking to you again soon.

Operator

Ladies and gentlemen, that does conclude the call for today Thank you for participating. You may all disconnect. Good bye.