Lynas Rare Earths Limited (OTCPK:LYSDY) Q4 2022 Earnings Conference Call August 25, 2022 8:00 PM ET
Company Participants
Jennifer Parker – Vice President, Corporate Affairs
Amanda Lacaze – Managing Director and Chief Executive Officer
Pol Roux – Vice President, Downstream
Gaudenz Sturzenegger – Chief Financial Officer
Conference Call Participants
Paul Young – Goldman Sachs
Hayden Bairstow – Macquarie
Daniel Morgan – Barrenjoey
Reg Spencer – Canaccord
Michael Evans – Acova Capital
Operator
Good day, and thank you for standing by. Welcome to the Lynas Rare Earths’ Full Year 2022 Results Investor Briefing. At this time, all participants are in a 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 would now like to hand the conference over to your first speaker today Ms. Jennifer Parker, Vice President, Corporate Affairs of Lynas Rare Earths. Please go ahead Ma’am.
Jennifer Parker
Good morning, and welcome to the Lynas Rare Earths investor briefing for the 2022 financial year. Today’s briefing will be presented by Amanda Lacaze. And joining Amanda in Sydney today are Gaudenz Sturzenegger, CFO; Pol Roux, VP Downstream; Daniel Havas, VP Strategy & Investor Relations; and Sarah Leonard, General Counsel and Company Secretary.
I’ll now hand over to Amanda. Please go ahead, Amanda.
Amanda Lacaze
Good morning everybody. So, we have a full court press here today, and so I think that should make for a very interesting call. You’ve all — you all get to hear from me quite a lot. But today, fortunately I have many of my colleagues who can deal with any of the more gnarly questions that you might choose to ask. In particular, I have Pol Roux sitting next to me, many of you know Pol, and he’s going to show him himself. So there he is. We’re trying — this as a video, but it turns out that we really have to snuggle up close to each other to be able to do this really effectively.
It’s always polite to make an acknowledgement of country. I think for those of us in the minerals industry, it is even more important. We would like to acknowledge the traditional owners of the lands on which we live and work across Australia and particularly in Western Australia. We acknowledge and value our Lynas’ Aboriginal and Torres Strait islander employees, partners and communities and we pay our respects to their elders past present and emerging.
We take this seriously in our business. It is not just a case of form over substance, and we are working hard to engage with our local communities, particularly in Kalgoorlie and Mt Weld to ensure that the prosperity that we are reporting today can be shared within the community.
Well, what a year? For many of you, particularly the analyst to pour over our various results, because of our quarterly reporting format, we don’t have a lot of new news, although it is, of course, we — sorry — I’m trying to move this along here. There we go. We don’t have a lot of new news, but of course, we see this on an accounting basis. But notwithstanding that we don’t have a lot of new news, I would like to just take a few moments to reflect on a fabulous year because after all of those years of very hard work of heavy lifting, it is a great time for us to be able to celebrate. The reality of what I think I said, to many of you who’ve been shareholders with us for many years, which is that we would be positioned to take full advantage of the benefit as the market picked up.
So, I’m going to spend a few moments on that and then really talk a lot about what next, because to stand still is to go backwards. And so, we are enthusiastically marching forward in our business to ensure that we are able to continue to generate prosperity for our business and for our shareholders as the market continues to grow.
So, of course, what were the high points in the year-to-date? A record profit. That seems to be an understatement when we look at $540.8 million impact compared to last year’s, which was, I think also a record profit at $157 million, but it’s certainly a significant uplift from there, nearly $1 billion worth of sales. We did — right through the year as we looked at our sales and operations planning process, keep on having a chart, which had $1 billion mark on the X axis — sorry — on the Y axis. And we were very keen that we should actually hit that. But there were certainly some challenges that we continued to face in terms of external environment. Just chart come a little bit short on that. EBITDA at $601 million and finishing the year with $965 million in the bank, certainly made us very happy.
What other things though that we really are — I don’t spend a lot of nights these days lying asleep — at lying awake at night in my bed, worrying about the business, but I still spend the occasional night where I worry about the business. So what are the things that are maybe a better way to put it really our key focus areas? First of all, production. Production was up in the year, just passed NdPr production was up 7.7%. We would’ve liked it to have been more than that. Our March quarter was particularly strong and gave us a great deal of confidence about our ability to be able to drive through, put particularly through the land. But we do continue to manage some quite significant residual external challenges as a result of COVID.
I’m sure that many of you who have listened to lots of results presentations will have heard about continuing logistics challenges. And for us in Malaysia, we have an additional challenge, which is really about utilities, specifically water and the availability for that consistently within our business. Both of these things have seen us have to modify the way that we go about managing our production including the addition of charter vessels in addition to our normal commercial shipping to ensure that we have material on the ground in Malaysia ready to be processed. But also with water we’ve put in place, a number of mitigating strategies, but we are not always able to mitigate when the pipeline is dry.
Of course, all of you who’ve been to other results presentations would’ve also had a lot of information on some of the challenges associated with costs. Certainly, we’ve had some extraordinary increases in the business, particularly associated with the reagents that we use. Sulfuric acid, probably prime amongst those where the prices are increased by up to a 100%. And so finding ways within our business to mitigate some of those extraordinary increases has been and remains a key focus for our organization.
I think that alongside these excellent financial results, we have seen some really good progress in terms of a number of our ESG initiatives. It has remained through the FY 2022 financial year, and even today that we need to be focused on keeping our people safe through the pandemic, but also, of course, just our operational and process safety. We were delighted to have achieved a milestone of 400 days LTI free at Mt Weld. But we continue to build our workforce. This is really important as we look at a continuing growth market that we are building our workforce in a way that really increases our capability. That means continuing to focus on diversity. We report gender diversity because that’s what the ASX requires, but it is not the only lens that we bring to diversity.
As I mentioned earlier, we are working very hard, particularly in Kalgoorlie to engage with our local in — potential indigenous employees and suppliers. And we are very pleased that we have been able to engage productively there, but there is more to be done. We, certainly, have seen significant improvements in gender diversity and as we look at our statistics, I mean, clearly to be able to get up to our target of at least 30% by the end of this financial year. We need to ensure that we are recruiting women at a faster rate as we seek to change these stats.
In both jurisdictions, particularly in WA, we are very mindful of the findings of the respect at work reviews, as well as the best Australian government review and reviewing our processes and our systems to ensure that we provide a safe workplace, not just physically, but also psychologically for our people from diverse backgrounds, whether that’s gender. I don’t think I’m that diverse, but apparently I am. But also from diverse ethnic backgrounds. And there are things that we can do practically, and we are doing those things practically as well as continuing to focus on ensuring that where we do have casual sexism of which I’m often guilty because, blokes, they’ve got a few challenges, don’t they, that’s a little bit of casual sexism, but nonetheless ensuring that we don’t have casual sexism, which really translates into unconscious bias is really important within our workplace.
Of course, the other things which are incredibly important is focusing on our climate change, mitigating our climate change effects. Our products are important for the technologies, which we’ll see the globe be able to address some of these, and ensuring that we embed thinking on our effect on the environment and everything we do is really important. And a small instance of that is the fact that all of our CapEx forms now have a requirement for the people who are proposing the CapEx to actually provide specific information with respect to environmental impact and emissions.
So, you’ll note that I didn’t really make much of a comment on sales or the market. And once again, Pol is with me today and who will discuss this as you ask questions. But this — the biggest challenge that we have today with respect to the market is really just that the speed at it is growing and ensuring that we preserve our prosperity in — as we grow with that market.
And so it’s pretty exciting when we look at our growth plan, we have ahead of us three actually pretty big years in terms of capital investment, three major projects. So, the upgrade that we announced a couple of weeks ago at Mt Weld about $500 million, that provides us not only with the ability to more than double throughput, but also to implement a number of initiatives to improve our resilience with respect to climate change, but also in terms of improving our effect on the environment. So that includes, water — improving our water recycling up to sort of 90% recycled could also includes looking at alternative energy solutions to our current solution, which none of us like, which is, of course, our diesel fire power.
The second project — and some of you had the opportunity to actually see progress here, of course, is our new Rare Earths processing facility in Kalgoorlie, which is progressing a pace. We finished the year more than 40% completed on that. And I can tell you that it’s significantly ahead as we speak. And every day I visit to that site, sees something new and different in place. And then, of course, the other very exciting thing was after, sort of many years of quite diligent work, we had the award for the heavy Rare Earths plant in the U.S. alongside the previous award for construction of the Light Rare Earths plant. We are now well progressed in the Phase 2 deliverables of that particular project. And as with Kalgoorlie, we expect project — we expect progress to now accelerate it.
But alongside those major projects, we have a number of complimentary projects of smaller size, which are really about building our capability as a business as we go forward. The exploration program at Mt Weld is very exciting. I don’t pretend that I get quite as excited as our GOs do, but nonetheless, as I’ve briefed previously, we have identified an exploration target as a result of our one kilometer deep drill hole that we did last year. It is very exciting. We saw continuous mineralization right through to the bottom of that drill hole. And that is, certainly, highly perspective for us to be able to continue to operate the Mt Weld deposit for many years to come.
Debottlenecking activities at Mt Weld continue. And in Malaysia, we remain very committed to our Malaysia facilities. We are increasing — many of you who’ve been with us for many years would know that, we’ve had pretty low sustaining CapEx over many of those years. We are now really looking at ensuring that we direct CapEx to ensure asset integrity in the most important areas. And as is indicated in both our release and in our financial report today, we have a number of projects in Kuantan, which will see us be able to pick up throughput growth over the next two years as well.
So, as always, I think it’s best if I talk rather less in terms of outlining the situation. You’ve got a number of documents, including our financial report, the release, and also the presentation, which I’m sure that you can go through your leisure, but really the best opportunity is for us to take your questions. And so, I’m very happy to do that now.
Question-and-Answer Session
Operator
[Operator Instructions]
First question comes from the line of Paul Young from Goldman Sachs. Please ask your question.
Paul Young
Yes. Good morning, Amanda and team, hope you’re all well. Amanda, hopefully this question’s not too gnarly, but thanks for additional information around the CapEx for 2023 and 2024. Just trying to figure out, what you need to spend on LAMP to get that facility from 7.2 to 10.5, you’ve given us the CapEx of 600 or so, you’ve given us Mt Weld of 500 and clearly nothing comes cheap at the moment to expand a small concentrator. But just trying to figure out what of the six — of the $1.2 billion of outline today in 2023, 2024 is going into LAMP and what is the budget to expand LAMP?
Amanda Lacaze
So, in terms of the expansion and the investment in the LAMP facility, there are a few areas in that. And so, it’s a little bit difficult to just pull out just the single point around uplift in terms of throughput. So, the big areas that we’re talking about in the LAMP, the first is actually the Emrick [ph] receiver. So that’s receiving the material which comes from Kalgoorlie. And as part of that, receiving that mixed rare earth carbonate and therefore — and dissolving it, ready to feed into the process. We are putting in a number of enhanced activities there, including things like management of soda ash and receival and a number of other areas.
The actual throughput uplift as it relates to the ability to get material through solvent extraction is a relatively small capital number because we are putting in place a flow sheet enhancement. So, we haven’t finalized the actual number on that, but it’s in the low tens of millions as opposed to hundreds of millions of dollars to do that because we are taking this new approach to flow sheet. And we will be putting in additional capability in our product finishing area once gain in the low tens of millions of dollars to do that by putting in new furnaces for production there.
A number of other things that we are doing within the LAMP investment is really more about enhancing asset integrity. It’s a — the plant is now a little older, it’s still relatively new plant, but still it’s a little older. And also some significant process efficiencies, like for example, continuous precipitation rather than batch precipitation. So, that gives you a sense. We will give a more detailed update on the LAMP capability. What we wanted to do in here was to put in some sort of markers for the size of that capital, but in the same way that we provided more detail on Kalgoorlie and Mt Weld, we will — at the appropriate time, once we’ve completed all of that task, provide more information on the LAMP.
Paul Young
Yeah. Okay. That’s really helpful, Amanda. Maybe just further to that. Is there a little bit of CapEx to — in FY 2025 to finish off LAMP and also the U.S. refinery, to hit the 2025 target, I presume there is.
Amanda Lacaze
There will be a little. And it’s always a bit tricky. There’s the capital commitments and then there’s — when does the cash actually go out? So, putting this sort of 600 plus 600, that should certainly by the end of FY 2024, we should be looking at the commitments, have all been made. It won’t necessarily mean all the cash has gone out for the U.S., because most of that is coming off the U.S. government — from the U.S. government grants that will just be a cash flow basis as we — we will have some cash go out and then it will actually come back to us as we claim that through the grant program.
Paul Young
Okay. Thanks. A final one for me, for now is around, I guess, heavy — production of heavy is a TBD wise, et cetera. First of all, thanks for clarifying the 12,000 tons of NdPr on a product basis, not equivalent. But just at that rate, can you go — can you guide to guide us to how much — what production of heavy will you have on an annualized basis?
Amanda Lacaze
Yeah. We can do that. Pol, would you like to address that?
Pol Roux
Yes. Good morning. I think we have, yes …
Amanda Lacaze
Look at us we could be in one of those nice sort of photos from a century ago.
Pol Roux
So focusing on this is high tech, right? One single personal computer support. So at the 600 tons a month of NdPr basically — and again, it depends on the mix of all we get from not well, but average content of Dy is around 70 tons of Dy a year and 15 tons or 20 tons of carbon. So this will move up proportionally if you move to — when we moved to 900 tons a month. And assuming we have always the same mineral coming, but of course, here there might be some development as well.
Amanda Lacaze
So, just on that, one of the things that the exploration program and our continuous resource drilling focuses on is not just mining for grade, but mining for elements. And so, up until now, we’ve — we really have mined for grade. And so the heavies that have come with the NdPr have simply come with the NdPr. But as we do more resource drilling, we understand that there are areas within our ore body where the heavies are relatively enriched. And so, we will look at our — we’re at present reviewing our mine program and we will look to be able to move into some of those areas, preferentially as we put our production capability in place.
Paul Young
Okay. Thanks. I have so many more, but I will pass it on. Thanks.
Amanda Lacaze
Thanks Paul.
Operator
Right. Thank you. Our next question comes from the line of Hayden Bairstow from Macquarie. Please ask your question, Hayden.
Hayden Bairstow
Morning, Amanda. A couple — a bit echo for some reason. Just a couple for me. Just on — firstly on the tax for the accounts, just want to understand how much more tax credits you’ve got so you can bring back on the balance sheet instead of give yourself tax shield going forward. And then just some comments on the NdPr mark, maybe from Pol, just keen to understand why the prices have come off as aggressively have, particularly in the last few weeks. What you’re seeing on that front, is it just literally these power restrictions in China closing their manufacturing, or is there something more to it? Thanks.
Amanda Lacaze
Thanks Hayden. And I have loved those questions bead use I’m not going to answer either of them. I’m going to throw to Gaudenz to talk to you about tax and then I’ll throw it to Pol to talk to you about the market.
Gaudenz Sturzenegger
Yes. Hello. Good morning. And I quick point on the taxes. So, I think, we are still in Malaysia on the pioneer status. So, you will not see the taxes coming through in Malaysia. In Australia, I think we did use up the tax loss carry forwards. However, with the commissioning of the Kalgoorlie plant, there’s another event happening there, which will probably also take this forward. And yeah, I think it’s pretty cleaned out on the tax side.
Amanda Lacaze
Okay. Over to Pol.
Pol Roux
Yes. So, in regard to market, and I guess the only focus is on price. Just a reminder NdPr price was 290 renminbi in July 2020, 550 in July 2021 and today’s 630 renminbi. So, yes, I know that it was thousand renminbi a few months ago, but 630 renminbi a kilogram is equivalent to US$85 CIF, China. It’s not that painful.
I think what is important to understand is that the demand and that’s what we see, the demand increase and continues to increase substantially. So we expect — sorry, we are looking at this in calendar years, but calendar year 2022, we expect this to be way a few percent more higher than 20%. So probably 22%, 23% up versus 2021, which was 16% up 2020. 2020 was a bit slow growth, but I think few businesses grew as much 3% grows and before it was 6% to 9%.
So, we are really in the situation of very strong growth. And the main drive — and I think it’s very important to understand the main drivers for this growth, basically very simple. First element is wind turbines and I think after years, and I think in the presentation pack, there is a slide on wind turbines. You will see that after talking about wind turbines for many years, in fact, the new installation of wind turbines were — was rather flat until 2020 — 2020/2021 is a step change. So we reached 93, or 95 gigawatt units every year. But the most important is to see the portion of direct drive and direct drivers as you know, consumes a lot more NdPr or magnets. So it’s 850 kilos of magnets per megawatt. So 10 megawatt consumes basically in direct drive 3000 ton of NdPr. And we foresee a continuous growth. If you look at the GWC, I think the very recognized global wind energy console numbers, just the confirmed projects around the world show continuous growth of minimum 6% to 7% in the next five years. And growing portion of direct drives. So this is first drive for the global demand and every wind turbine maker, I meet, is very eager to secure their overall supply.
Second trigger or driver for the growth is automotive. So global economy being a bit uncertain, I think it’s reasonable to not plan for growth, any growth in the global automotive market. So, let’s assume that you would still have 80, 85 million cars sold a year worldwide in five years time. And then we will see, hopefully the world will become easier, but let’s be reasonable. When you build internal engine, internal combustion engine car, you have inside an average of 1.2 kilograms of magnets. When you go for hybrid or plug hybrid’s 2.5 kilograms of magnets. And when it’s battery cars, it’s three kilograms of magnets. All-in-all, what the key numbers to keep in mind is that for 10 million cars, if it’s internal combustion engine, it consumes 4,005 tons of NdPr side. If it hybrid or plug hybrid, it’s 5,000 tons more. So when you replace internal combustion engine with hybrid plug hybrid, you actually consume 5,000 ton more of NdPr side. And if you replace that by batteries, the EVs, that would be close to 7,000 ton oxide more, and that is exactly that what is happening in Europe.
This morning, there was announcement for California to ban internal combustion engines by 2025, I was in France enjoying too hot chemical weather last month. I was amazed to see the number of electric cars. Today it’s ahead of diesel cars, which is something that is very new. So this doesn’t change. The demand is very strong. So you have a temporary situation where we saw recently the price decreasing again, to a level that is not too painful. $85 few years back would be our dream. Not even in our dreams. But well, not forgetting that the costs have increased a lot, so everything is relative.
But the key question is on supply and the key question was how much production quotas China would release. So, it was announced end of July or August. I know that magnet buyers and makers were expecting a 40% increase in quotas. Real suppliers would prefer 20%. And at the end of the day, the increase was 25%, which is — which shows that actually China is concerned about maintaining a certain stability on the market. And that should make us all very comfortable with the price forward. But again, as I always say the best way to enjoy NdPr price is buy some from us, put this in your garage and make a lot of money sometime.
Hayden Bairstow
Okay. Great. Thanks. Just following back on that tax question, Amanda, just on — when does that holiday run out? I mean, you’ve been operating for almost 10 years, haven’t you now in Malaysia?
Amanda Lacaze
Yeah. So Gaudenz.
Gaudenz Sturzenegger
Yeah. It’s running until 2026, that’s another three years ago.
Hayden Bairstow
Okay. Got you.
Amanda Lacaze
And I would apologize for — to all the Americans on the line for Pol, thinking that California was in Europe. However, there are some consistencies, I guess, in approach to some of the regulations. I think Hayden, within your question was also sort of this temporary softness in the price, which certainly is reflecting some quite difficult situations within China, outside of China. And I think it is always incumbent on me to remind investors that we are the only non-Chinese producer of separated rare earths. Demand remains very strong, and we find that not only, of course, our traditional and high valued magnet making customers, particularly in Japan, demand is very strong, but we are seeing a lot more pull through as well from end users, both in European and U.S. markets. Once again, the core reason why we are so focused on increasing our capability as fast as possible, so that we can continue to grow with the market.
Operator
Thank you. Our next question comes from the line of Daniel Morgan from Barrenjoey. Daniel, please ask your question.
Daniel Morgan
Hi. Is that me?
Amanda Lacaze
Yeah. Sure. It is you.
Daniel Morgan
Yeah. Sorry. It just broke off. So, my first question is, so you’re expanding your business, which is great. Just wondering about your customer base in the years to come. What is your latest thoughts on magnet making facilities being built outside of China? So, when you grow, as you plan to, does that additional volume, is it going to go to Japan? Is it going to go to China or might we have your European or United States magnet making facilities?
Amanda Lacaze
Once again, I’ll let Pol take that question.
Pol Roux
I think, as of today, the biggest magnet manufacturing, of course, is Japanese. And I said Japanese because the major magnet maker has a new base in Vietnam, [indiscernible]. So, they are growing all together very strong and much more than with what we were expecting a few years back. There are many projects around in Europe and U.S., we are offering them very closely. And of course, any projects for magnet making anywhere needs to secure supply of NdPr outside China, there is not many options. So, it’s an easy marketing for us. Our job I think is very simple, is to provide the environment for magnet maker to grow or to happen in the U.S. and in Europe and in Asia. So what we aim at is to provide both slight heavies and recycling capability in this areas. And so that, that is the — on the supply side, the competitive environment, that when you make magnets is very important to have next door recycling capability, otherwise you are not competitive. And to continue promoting these possibilities and capabilities to — with the OEMs, because at the end of the day, the decisions is from the OEMs to actually secure part of their supply or sourcing from a non — fully non-Chinese supply chain, decision is in their hands. Our job is to provide the environment for this to happen. But I’m pretty sure it will happen, but there is absolutely no confirmed project as far as I concerned today.
Daniel Morgan
So does that mean that you are targeting to try to sign offtake agreements with for your book that is not contracted away? May maybe just remind us on what your order book or offtake agreements are with Japan, and then how does that change as you grow?
Amanda Lacaze
So, as part of our agreement with JARE, we have certain offtake agreements, which see us prioritize supply so long as it is at no commercial disadvantage, which is a really important clause that basically says that we will sell to the Japanese, providing them will pay us more than anybody else will pay us.
In terms of the — sort of our portfolio of customers, as Pol just been indicating, we have magnet makers and we have magnet buyers. Most of what we sell at present and most is actually to magnet makers, but we do have some contracts with magnet buyers as well, where we will assure the supply of the raw material and they will actually give us the address of their magnet maker to deliver to. So, as we look at this, the dominant portion of our business goes to magnet makers today. But we have strong demand from magnet buyers. Once again, one of the reasons why we’re seeking to increase our throughput as quickly as we can. So, we will be able to allocate material into there.
When we think about pricing, particularly do we take pricing strategies that mitigate the fluctuations of sort of the published price? And once again, we’ve indicated for some years that we look to have a portfolio of pricing. So we do have a couple of key contracts, which have poor ceiling prices, which sometimes that works in our favor sometimes not, but across the period of the contract, we have found our poor ceiling prices have had a net benefit to the company.
And then there are particular segments where we might look at other options, like for example, fixed price. This is particularly relevant for wind. And as Pol said, this is an increasing — increasingly important segment. So, a producer of wind turbines will have a project which might have a two-year life, and it is more important to them as they conclude their negotiations on that to have guaranteed supply at a set price rather than necessarily how it might correlate to any particular day’s published price. So, we do have within our order book the majority of our materials sold with some sort of reference to the published price, a portion of our material sold on for selling contracts and a smaller proportion sold on fixed prices. But we are always open to the concept of fixed prices probably for not much more than about two years, but coming up with fixed price contracts for that period of time where it is relevant for sort of our customers business.
Daniel Morgan
Thank you. Switching to drilling outlook — sorry, just some feedback, resource drilling that you’re undertaking, can you just outline what is the extent of the drilling campaign? Is there a target date for a new resource reserve? And then, how important is the upgrade to the Mt Weld expansion that you’ve outlined recently the $500 million to do appetite or processing? Like how important is that for the future resource reserve at Mt Weld?
Amanda Lacaze
Yeah. That is a really good question, Daniel. And so, we have two pieces of drilling work. Of course, we have the normal resource drilling, which is associated with our mine plan on the existing mineral reserve. And so, we continue to do that at present as part of the mining campaign. And that’s the piece where I was talking about really drilling into some areas, we call it, the Mickey mass is in particular, but into some areas where we have more relatively — where it is relatively enriched with the heavies. Then separate from that is the more fundamental exploration program, which is really about the carbonate resource and what lies beneath the current mind pit floor, and that we expect is at least a two-year program. And we will provide some further information on that as we move forward.
Of course, it is really important for us to understand the reserve, the ore body. And we do expect that as we move through that program work, we will be able to provide a new resource and reserve statement. We don’t have a target date for disclosure at this time.
The app title as, Alex Logan, who I think you’ve met, says appetite can be our best friend. And it is certainly part of the flow sheet as we move forward. What are the challenges with appetite? Well, the challenges are sort of the speed at which it will float and ensuring that we improve our recoveries, when we have a mixture of the appetite of the monolithic ores. And so that has been factored into the flow sheet for the Mt Weld expansion.
Daniel Morgan
Thank you very much.
Amanda Lacaze
Thanks Daniel.
Operator
Thank you. Our next question comes from the line of Reg Spencer from Canaccord. Please go ahead, Reg.
Reg Spencer
Thanks. Good morning, Amanda, Gaudenz and Pol. I’ve got three questions and they really more top down market stuff, Amanda, so you probably get a bit of a reprieve here and maybe one for Pol or several for Pol. You — appreciate your comments around your observations of the NdPr price. I too am trying to connect the dots between anecdotal evidence of strong demand, how that might interact with increases in Chinese production quotas and pricing action.
I know it’s not a pure market, and we just kind of have to accept it, what it for what it is. But just on those Chinese production quota increases. Pol, what do you believe that capacity utilization is now because we’ve seen almost four years, four years consecutive years of quota production increases. Are we getting towards capacity? Or is this — are we kind of witnessing some capacity being exported to Myanmar, for example?
Pol Roux
That’s a good question because I used to be — used to say 50% the capacity is ideal, but that was years ago. So yes, you’re right. Step by step 20% to 20% they are eating this capacity. This being said, Chinese to me remain on top of everyone in terms of execution of industrial plants. So, I would not expect too much that some stage there would be enable or being short of capacity. They can build factories faster than anyone else.
What I want to explain a little bit, because I always hear that the price mechanism or the price is not the proper market price. Well, I think, the market price in rares is like in many other metals, it’s in fact based and fixed by the real spot market, which is probably 15%, 20% of the total market, 80% of the market is referring to published price. So, the real spot price is small and that’s the reason why from time to time, you see price variations that are against the actual supply/demand situation, simply because someone bought the spot market availability and dried up this market. So dried the price up, even if the demand goes down or vice versa.
The other element that was making the price very volatile in the past was the fact that you have 25% to 30% of product that is actually recycled swap. And that was managed by mainly independent companies and is now mostly integrated into the big suppliers in China. So, it’s a lot less volatile and that’s the reason why we see now prices that are much more stable than what we have seen in the past.
Reg Spencer
Okay. Understood. Thanks. And I guess an associated question to that Pol, would be obviously NdPr prices based on public reporter prices has fallen 30% since the middle of the year, but yet the other key magnet REOs in the turbine wind prices have fallen by much less. Do you think that’s a function of just market size and liquidity relative to NdPr, which is obviously much, much larger, just try — because if demand — it has apparently fallen or market conditions of ease based on NdPr prices falling. I would’ve thought you would’ve seen a similar impact in Dy Tb as well.
Pol Roux
Dy Tb has a different situation. There is a real shortage of resource. China is very serious in reducing the situation. So today main sourcing of iron clay from Myanmar, and I heard that some supply comes from Laos and other sources to Asian countries that we know very well. But basically, this resource is limited and that’s a concern because as you know, the Dy Tb role in the magnet is to improve the temperature resistance of magnets.
My view on this is that you will not change Mother Nature. And so, when the market grows so much and Mother Nature cannot change and develop more resource, what will happen is, restructuring — kind of restructuring of the magnet market. Because when you look into detail on the technical capability of magnet makers, you see a lot of differences in their expertise. And so, when one would use 3% Dy for given magnet, another one would use only 1%. And so, this is making massive difference in competitiveness, and we’ll definitely restructure, especially in China, the magnet market. And I think we’ll have a lot less players in the magnet industry in China in very few years than what we see today.
Reg Spencer
Excellent. Pol, that your help is always very much appreciated us and understanding this market. Last question is probably one for back to you, Amanda. The inflation reduction act, there’s obviously some pretty relevant components of that and what that might mean for critical minerals markets. What the — are you able to comment on what that might mean for your business’ strategy going forward? The development of a domestic North American magnet supply chain, would you look at potential additional separation of finishing capacity in North America? I’m just trying to get a feel for what you think that might mean for Lynas as a business.
Amanda Lacaze
Yeah. So, I always love the way that you guys, the minute — we’ve sort of announced that we are doing one thing you ask is, well, what’s coming next. As a poor dumb operating manager, I’m a bit more focused on executing. The one thing that we’ve said. So, the constructing our rare earths processing facility in the U.S. is getting, keep us fairly busy for the short term.
As Pol said before, we are focused on creating an environment in which it’s attractive for people to invest in magnet making and proximity to raw materials and recycling capability is important for that. I can’t provide terribly insightful views on the inflation reduction act. I have to say. But I can say that we at present finalizing a second go round at the costs of implementing our U.S. facility. And our discussions with the U.S. government are based upon understanding the various forces that play into that.
But it looks like Pol wants to say something, so I’m going to let him.
Pol Roux
Just clarify, the U.S. project, when you look at the numbers, the light and heavy rare separation that we plan to put in place together with a recycling capability would be able to supply for close to 7,000 tons of finished magnets per year. So, to make it very simple, that would give U.S. to move from, let’s say, zero tons of production of magnets today to around 50% of what Japan is producing. So, let’s do that first, with whoever serious magnet maker willing to get there and OEM committee — committed really to make a change. And then after catching up 50% of Japan, maybe time to look at 100% and why not 150% will be more than happy if I’m not retired, but let’s try to get to 50% first. That’s — what we put in place is this environment for anyone to put in place 50% of the existing capacity of magnet making in Japan.
Reg Spencer
That that makes a lot of sense, Pol and Amanda, and good insights for it. Thanks very much. I’ll pass it on.
Amanda Lacaze
Thanks Reg.
Operator
Thank you. Our next question from the line of Michael Evans from Acova Capital. Please go ahead, Michael.
Michael Evans
Hello. Thanks very much for taking feedback. I just want to revisit the capital questions please, Amanda and team. Thanks for the guidance on the 600 this year, 600 next year. Maybe start with the simple ones. On that, not my award Kalgoorlie. It’s about 40% complete. Should we assume about 40% of the cash is gone out the door or higher or lower. And on the PDF in Malaysia, can you give us an indication of how much has already been spent on that up to June 30?
And I suppose with third part of the question is on that 600 plus 600, are you assuming that you’ll continue to be able to crack and leach in Malaysia, beyond July next year and for whatever reason, if not, how does that impact that CapEx? And then maybe the fourth part of the question is on the product finishing and separation in Malaysia. You’ve got — I think at the beginning of last year, you indicated about US$60 million for — I think it was 1,250 NdPr production at the LRE plan in Texas. Is that a good capital intensity to apply to the product finishing and the separation in Malaysia?
Amanda Lacaze
Okay. So …
Michael Evans
That’s — these are my questions.
Amanda Lacaze
It’s nice to hear from you again, Michael. So, I will let Gaudenz deal with the first two parts of the question. I’ll deal with the third, which now my — what was it? The third one was the C&L and Malaysia continuing. We make no assumptions. But we have been steadfast in our view that the various reviews of our operations in Malaysia have found that our operations are intrinsically low risk in that we are compliant with all regulations. The Pakatan Harapan government’s Executive Review Committee in 2018 recommended that we should implement a PDF for the WLP residue, the iron phosphate residue, and we have done that. So, once again, we have complied with the guidance and the recommendations from the scientists who were involved in doing that review.
So, we maintain the position that this is — the facility in Malaysia operating as a full facility is good for us, and it is also good for Malaysia and particularly for our Malaysia employees and communities. And so we continue to advocate on that behalf. But we do not make any assumptions with respect to what the political or policy position will be.
Gaudenz can deal with the first two parts of the question. And then just on the final one, in terms of capital intensity, the task of increasing throughput in Malaysia, of course, is a much simpler task than the Greenfield’s operation that we’re talking about in the U.S., a Brownfield’s expansion, even if it does require us to put in, say new buildings like we are doing for the mixed rare earth carbon receival, is still a much lower cost than a Greenfield project of the sort that we have in the U.S. So, no — the simple answer is no, the capital intensity is much higher for the U.S. than it will be in Malaysia.
But over to you Gaudenz to answer the first two questions on the capital spent at Kalgoorlie.
Gaudenz Sturzenegger
Yeah. Hello, Michael. I think the answer obviously on the Kalgoorlie one is pretty straightforward. Cash follows the activities. So it’s slightly below the — the cash spend is slightly below the 40%, but not too much. And on the PDF, I think we are already slightly above 50% on that one. As you recall, there were kind of milestones or there are milestones in place. And — but obviously we needs to follow is the construction costs, which are flowing through. And also the removal or the — yeah, moving the material from the plant sites to the PDF. And that obviously can only happen when we have at least the first cell finished. But overall, slightly above 50% has been incurred or — well, if you look at the India accounts, it’s kind of on operating cost, really the rehab, which has been realized.
Michael Evans
Okay. That’s great. That’s really helpful on all those answers. Thanks Amanda. Thanks Gaudenz.
Amanda Lacaze
Thank you all.
Operator
Thank you. [Operator Instructions]
Amanda Lacaze
Okay. Well, I see that we are now at 11:03. So, if we have no more questions in the queue, we’ll wrap up now. Once again, with a reminder that we’ve had an excellent year, and we continue to look forward to a very prosperous future as we execute our ambitious capital program and as the market continues to grow.
So, thank you all. I’m sure that we’re going to see many of you in-person over the next week and I look forward to doing so. Thanks all.
Operator
Thank you. This concludes today’s conference call. Thank you for participating. You may now all disconnect.
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