Windfall for Lynas but...

Shares of Lynas Corp Ltd gapped up last Thursday on the Australian Securities Exchange when the Atomic Energy Licensing Board of Malaysia granted a two-year temporary operating licence to the company's rare earth refinery in Gebeng, Kuantan.

The counter opened at A$0.90 on Thursday, much higher than the previous day's close of A$0.595, and reached a high of A$0,95 before closing at A$0.84. All told, shareholders of Lynas were 41.2% or A$420 million (RM1.35 billion) richer in just one day.

Lynas shares continued to attract investor interest on Friday. In fact, the investment community is bullish about the rare earth mining and refining company. Of the 13 analysts covering the stock, eight recommend a "buy", four a "hold" and only one a "sell".

Lynas has a median target price of A$1.32, which means there is more upside for the counter. At A$1.32, Lynas will have a market capitalisation of more than A$2 billion.Lynas is said to have spent RM2.2 billion on constructing the largest rare earth plant outside China in Gebeng, but that is likely investment it could recoup, given the anticipated demand for the material.According to reports, Lynas plans to produce 11,000 tonnes a year in its first phase of production. At current prices, the 11,000 tonnes are worth A$3.3 billion.

How much of this, in terms of economic benefit, will accrue to Malaysia for allowing Lynas to set up a plant here when it would not do so in its own backyard? Let's not forget the plant is getting a 12-year tax holiday.

Lynas boasts of creating 350 skilled jobs, which in turn will create secondary jobs in the local economy up to five to eight times more. Malaysia is also set to gain RM3 billion in export revenue every year while the plant's annual operating expenditure will be RM600 million.

But what about the potential costs to the country? One is the possible damage to the tourism industry due to concerns about health hazards associated with rare earth refining.

While opinions are divided on the risks linked to rare earths, aren't there other investments that Malaysia should have sought, those that are strategic to the country's natural resources, capabilities and aspirations, and not an industry that faces strong public resistance at home?

Resource: The Edge, Page: 11
Date: Monday, 10 September 2012