Lynas Rare Earths Limited

Good morning, and welcome to the Lynas Investor Briefing for the March 2020 quarter. Today's the presentation -- the briefing will be presented by Amanda Lacaze, CEO and Managing Director.

Amanda is joined by Andrew Arnold, General Counsel and Company Secretary; and Gaudenz Sturzenegger, CFO. Please go ahead, Amanda.

Good morning, Jen. Well, good morning, everybody.

Isn't this a slightly different way of doing things. I'm trusting that everybody on the other end of the line has dressed appropriately for this -- to this teleconference and that there is a minimal amount of Lycra amongst particularly our middle-aged males and that everybody is truly dressed for success.

Well, what a quarter we've had. We started with a Malaysian operations shutdown and we finished the quarter with a Malaysian operations shutdown, but for two different reasons.

And in between these two bookends, we delivered some excellent outcomes for our business. Certainly during the quarter external factors continue to be very varied and challenging.

But we're paid to manage our performance to these sorts of external challenges to ensure that our business comes through it hopefully stronger than we went into it. So today, we're all subsumed with the issues of the Covid-19 challenges but remember during this call quarter, our business is dealt with licensing challenges, very dynamic Malaysian politics, some influences on the market demand from the early effects of Covid-19 in China.

The change in government in Malaysia and of course, ultimately the movement control order in Malaysia, which has seen us shut our Malaysian operations. But as I said, we're paid to manage our response and our approach of forming small, focused and expert teams to deal with each of these challenges has paid off for our business.

Taking first of all, because it was the thing before Covid-19 that tended to engage everyone most was really understanding where we're at and progress on the licensing, which of course as you would recall our license was due for renewal on the 3rd of March. Our Malaysian license team ably led by Dato' Mashal and Professor Ismail really delivered some outstanding outcomes, continued engagement with relevant regulatory bodies and ensuring that we met the conditions that were associated with the renewal in August last year saw us with the renewal of our licence for a three-year period.

Alongside that Mashal and Ismail and other members of their team ensured that we had a resolution to matters associated with the PDF requirements in Malaysia. We have a very clear plan and a pathway to success for that and issued a contract for the management of that project to GSSB.

In terms of production, we started up very well and then of course we shut down. But we've been able use our time to really ensure that when we stand up we stand up even stronger than we did in January.

And I was particularly pleased with our startup process at that time. So if we look at just some of our results and the highlights of those.

And I know you'll have all read the report, but nonetheless, we are in, I think, and it's one most overused expression at present but very challenging times for us. We've gone into this in the strongest position that our company has ever been financially.

We've got a strong balance sheet. We've got excellent cash balance which enables us to manage our way through this process.

But during the quarter, production notwithstanding that we lost probably up to about 21 days of production including 1,369# tons for NdPr production was truly excellent. And we were on track to really an outstanding quarter in terms of production given that the first two weeks was much slower with the startup from our shutdown at the end of December.

We, also our total REO production was up on the previous quarter. And so this is a reflection of improved management.

We are in -- always the state of looking at continuous improvement so improved management at both sites and indeed improved management in terms of the way that we are integrating between both of our sites. So for example, one of the things that we implemented which seems small and maybe gets lost among many of the other things we're doing is a new circuit and map well to deal with the Covid-19 in our raw material, which saw us being able to deliver a better outcome in Malaysia.

In terms of sales, certainly the market in general has been subdued and that has reflected some of the early challenges in China as a result of the early influences from Covid-19 in China, but demand outside China remained strong even though prices were not as robust as we would like them to be. But the outcome is that we had good sales revenue, as well as excellent cash conversion of those sales.

One of the things we're particularly proud of last quarter, I think we talked about the fact that we were starting to see really benefit from our a long-term strategy of contracted sales and outside China sales on price and we're really pleased to be able to report that we reached a new low on our sales inside China. Many of you will know that I've often said Pol's KPIs go like this.

Sell everything we've produce, then second one is sell everything we produced outside China. And the third is sell everything we produced at a premium to the published price.

So only 10% of our sales in this quarter were made into the China market. Pol assured me that this will stop at about 1% because he doesn't want to lose his job.

And I think we can negotiate that. At the same time, we continued the Lynas 2025 team continued to focus on the development of all of our growth projects including of course Kalgoorlie, where the project team is very capable to be working on a distributed basis as they plan and design our plant.

We went for a virtual walkthrough of the design at our last steering committee meeting and that stands to really bring the whole project to life. We've released our first tender for a long lead-time product in particular; the kiln and those tenders have been received.

And we're now proceeding to detailed tender evaluation. We, in addition to the heavy rare earths tender that we lodged in the previous quarter in the US there was a further tender, set of tender documentation released by the US government for a light rare earth operation in the US and we have submitted that during the March quarter.

So we have remained very, very busy through all of these various external challenges. And I think that the outcome that we see today was certainly we've seen some benefits from foreign exchange.

In fact that we were able to notwithstanding a number of sort of significant calls on our cash as well as the limitations on production at the beginning and end of the quarter. We've been able to generate positive cash flow.

And we're very proud about that. So where to from here?

As we've also announced today, the Malaysian movement control order has been extended through to the end of April. However, the Malaysian government has also provided new guidelines on those industries, which may be able to start up.

So we believe that we fit within a number of those criteria. And have lodged our application and are waiting for that at present.

Of course, the importance is how do we start up and I did a presentation last week to SEDAR where I was widely quoted, quoting that old saying which is never waste a good crisis. And certainly we have been certain that we are not wasting this time.

So whilst the Malaysian operations are shut down at present, we have spent the time ensuring, a; that we have operating procedures, which ensure that we are protecting the health and safety of our people, their families and our local communities. We have temperature checking on-site.

We have enhanced operations intensive cleaning and hygiene procedures. But we have also been using this time to ensure that our knowledge workers particularly our process engineers are doing work, which will ensure that we are operating better and more safely.

Again once we start up and we have also been using a variety of different mechanisms to ensure that our operators who can't normally do their work remotely are engaged in training activities and remaining very engaged with the business. So that when we do start up, they will be well prepared for that startup process.

The other thing that this gives us an opportunity to do is even with some of them the shutdown with the regulatory constraint and we were never completely shut down. And we still had activities on site.

Our leadership team we're still very much engaged with managing daily activities. They've had a lot of more time opened up to really rethink our operating parameters and think through and model how they're going to restart this business.

We would expect that there's going to continue to be somewhat muted demand in the market for at least a six months period. And so making decisions on what sort of throughput rates we will target and how we can do that in the most cost effective way is something that our operations team in Kuantan has dedicated their time to over the past couple of weeks.

We have an excellent startup plan and we're very confident that we can start up in a way which is both cost-effective whilst ensuring that we meant the fresh demand from our key customers. At that well we have continued to operate because West Australian government has nominated the resources industry as an essential industry.

There too we have implemented a number of new protocols to ensure the safety and health of our workforce and our local community. At present, Mt Weld's processing operations are shut down.

We've built some quite good process stock in terms of concentrate and our team is focusing on using this time productively to complete a number of improvement projects that we may otherwise have had to outsource. So once again improving cost effectiveness.

So we are hopeful that we will be starting up in the near future. We have a plan to that start up.

We're confident that we will be able to do it both cost-effectively and in an operating sense very efficiently. So once again just reflecting on the fact that we had really an excellent production quarter.

It showed the benefits of a number of our investments that we've made to improve things like reliability, recoveries. We've had an excellent outcome in terms of our sales development and our portfolio of customers and the markets into which we sell.

We certainly seeing the benefit of the efforts that we have put into the outside of the development of the rare-earth industry outside China. And Japanese demand remains steady and we think given the fact that we are so important to the hybrid and electric automotive segment that we will see that and balance out to some extent some of the subdued demand in other sectors.

So finishing the quarter in pretty good shape financially and feeling pretty confident about our ability to continue to weather the Covid-19 challenges. So with that, I would be happy to hand over and take questions.

Okay. Well, once again thank you all.

I'm very pleased with our performance during this quarter. And potentially pleased with the way that everybody in the business has manned up to the various challenges with which we've been presented.

And I remained very confident that we are going to come out of this in good shape. And actually with the work that's being done by our various teams with a really refreshed and energized and improved operating results.

So thanks for your attendance today. And look forward to keeping you updated as we forward.