As the risk for international trade restrictions flares, supply chain managers in the electronics industry have looked to diversify their supplier network for rare earth elements. With 80 to 90 percent of current rare-earth mining operations being situated just in China, other locations such as those run by the Australian-Malaysian Lynas Corporation have seen a recent spike in business interest. However, while rare earth suppliers outside of China may help to diversify source countries and mitigate trade restriction risks, supply chain managers should anticipate lax environmental practices and increased regulatory risk, as exemplified by recent events faced by Lynas in Malaysia.
Lynas offers Australian-mined, Malaysian-refined alternative
Lynas sources from the Mount Weld mine in Laverton, Western Australia and conducts refining operations at a processing plant in the Gebeng Industrial Park near Kuantan, Malaysia. The Mount Weld mine contains low levels of naturally-occurring thorium, a radioactive material that is commonly found with rare-earth deposits. In Lynas’ current production configuration, unrefined material is shipped from the Mount Weld mine to Kuantan for processing. Materials in Kuantan are sent through a first-stage refining process called cracking and leaching, which separates rare-earth elements from other materials (including thorium), producing 1 non-toxic residue byproduct (Neutralisation Underflow Residue, or NUF) and 1 low-level radioactive byproduct (Water Leached Purification Residue, or WLP). Lynas currently holds 451,000 tons of stockpiled WLP residue in Malaysia.
Local scrutiny of environmental practices heightens regulatory risk
While Lynas maintains that radioactivity in their Water Leached Purification (WLP) residue byproduct is low enough to meet the requirements for applications such as road base material in the United Kingdom, local residents and environmental groups have increasingly expressed concern over possible health effects related to waste management practices since 2011, when the facility still had not yet opened. Most recently, On April 10, approximately 200 protestors comprised of Kuantan-area residents and 60 environmental and civic groups gathered in Kuala Lumpur to protest against WLP residue storage and high amounts of nickel and chromium that were discovered in local groundwater samples during a 2018 government investigation of the company. Protesters, supported by strong media coverage, made their concerns clear and called on Malaysian regulators to suspend Lynas’ operating license and to ensure that it removes toxic waste from the country.
Malaysian regulators have indicated that the protesters’ demands should not be considered outside of the realm of possibility. In November 2018, Lynas was forced to temporarily halt production after meeting its annual quota and failing to obtain regulatory approval to exceed the quota due to environmental concerns. Later in 2018, the Malaysian government issued new requirements that threatened not to renew Lynas’ operating license, due September 2, 2019, unless the full WLP stockpile is removed from Malaysia by the renewal date.
High-profile events in Malaysia highlight risk to other rare earths suppliers
Until media sources claimed on August 5 that the license will be secured, Lynas’ future operational status was subject to heightened uncertainty amidst spirited public debate. On May 21, Lynas announced that, if approved for its Malaysian license renewal, the company would invest USD 346 million (EUR 309 million) to relocate all radioactive material-producing activities to a new facility near Mount Weld over a 5-year period. On May 29, Prime Minister Mahathir Mohamad stated that Lynas would be permitted to continue operations despite the absence of a commitment by the company to remove existing WLP stockpiles. However, this has not yet been formally ratified by his cabinet, where some opposition remains. The outcome of a June 28 hearing to appeal against the WLP stockpile removal requirement has also not been publicized.
Customers of Lynas should closely monitor developments in their operating license renewal process over the coming weeks and ensure that adequate supplies are secured from other sellers in case of a production halt. More broadly, supply chain managers in the technology sector should study the case as indicative of the regulatory risks that non-Chinese rare earth suppliers are likely to encounter as demand grows.