Lynas Rare Earths Limited (OTCPK:LYSCF) Q1 2022 Earnings Conference Call April 11, 2022 8:00 PM ET
Company Participants
Jennifer Parker – Investor Relations
Amanda Lacaze – Managing Director and CEO
Gaudenz Sturzenegger – Chief Financial Officer
Pol Le Roux – Vice President, Downstream
Daniel Havas – Vice President, Strategy and Investor Relations
Sarah Leonard – General Counsel and Company Secretary
Conference Call Participants
David Deckelbaum – Cowen
Paul Young – Goldman Sachs
Hayden Bairstow – Macquarie
Daniel Morgan – Barrenjoey
Reg Spencer – Canaccord
Trent Allen – CLSA
Tim Ainsworth – Talfain
Operator
Thank you all for standing by. And welcome to the Lynas Quarterly 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]
I’d now like to hand the conference over to Lynas. Thank you. Please go ahead.
Jennifer Parker
Good morning. And welcome to the Lynas Rare Earths investor briefing for the quarter ending March 31, 2022. Today’s briefing will be presented by Amanda Lacaze, CEO and Managing Director. And Amanda is joined by Gaudenz Sturzenegger, CFO; Pol Le Roux, VP, Downstream; Daniel Havas, VP, Strategy and Investor Relations; and Sarah Leonard, General Counsel and Company Secretary.
Please go ahead, Amanda.
Amanda Lacaze
Hi. Good morning, everybody. Now I know that not everybody who is on the call is Australian and that everybody who’s on the call who is Australian even follows the AFL. But in the AFL in the Grand Final, the third quarter is also known as the championship quarter. This is one of the quarters when one team lifts and runs with the wind behind their back to a big win.
Often as you listen to the commentators, they say, what a blunder of a quarter, and I have to say, I can’t think of a better way to describe our third quarter than what our blinder. I am tempted to just stop there and then say, are there any questions. But just to pick out a few of the high points, of course.
AUD328 million in revenue, AUD262 million receipts in cash, but I guess the thing that will surprise most was the 1,687 tonnes of NdPr as we had the plant running very well. But we have sort of indicated that for some time now. But really a lot of the tactics and strategies that was put in place to manage our business in the face of continuing external unpredictability certainly has given us the position where we are able to sort of keep things running really on a sustainable and steady basis.
So, all of these results are on the shoulders of our teams in both Australia and Malaysia. The Malaysian performance is really outstanding when we consider that, I think, we are up to the fifth wave of COVID in Malaysia. We have had up to 40% of our people, despite being so highly vaccinated, certainly have had up to 40% of our people with COVID during that period of time.
And of course in Australia, in Western Australia we are still managing a very sort of resource intensive management of COVID with in both locations we have still got twice or three — three — thrice weekly testing regimes.
But really the Malaysian performance was really outstanding notwithstanding some of those challenges and I have indicated on these calls previously the addition of charter vessels to ensure that we have feedstock on hand in Malaysia so we can keep that factory running full bore.
Now world has kept pace with the improved performance in Malaysia. However, our key focus there is on further debottlenecking the operation to really squeeze every last bit out, because we are very alert to the fact that we need to continue to be building a stockpile for the period of time and we are feeding to cracking and leeching plants.
As the results demonstrate our projects remain in good shape with really no news because we recorded it around half year that of course in other disclosures to the ASX, but we proceed key approval — all of the approvals in WA and work on the Kalgoorlie facility is continuing at a pace.
We have included some photos for those who aren’t able to get to Kalgoorlie, which I think shows you really just how significant the progress on site is, with all of the sites now cleared, all of the kiln pieces there, the footings are in-place with a lot of tanks which are on site now. And the team, despite the occasional sort of absence related to COVID, the team on the ground is really delivering a really outstanding performance.
I think everybody would know that there’s lots of maybe been lots of media particularly in the past few couple of weeks about continued government support and focused on continuing development of critical minerals supply chains outside of China.
I think it is really important to note that even with sort of our perfect project execution lead times to meet supply are quite long and today and for the foreseeable future the non-Chinese supply source is separated, rare earths comes from our Malaysian facility. We are very alert to the importance of that facility for the outside China industries and so very focused on continuing to develop our capabilities there.
At the same time, and as I have indicated previously, we are very focused on how do we grow faster to meet the accelerating market demand and we are very pleased that the further deferral of our interest, our historical interest liabilities to JARE is really an indication of our continuing to develop that relationship as we look at the sorts of investments that again we need to make over the next couple of years. It includes significant exploration program at Mt. Weld, as well as an upgrade to the facilities there and an upgrade to sort of our capacity to separate rare earths in maybe one or more locations.
There is also quite a lot of media associated with Ministerial [ph] trade delegation to the U.S. We had two of our senior staff join that delegation and they had excellent engagement with the U.S. Government, both as part of the mission and independently as we reviewed elements of our expansion plans into the U.S.
So, I don’t really need to say. I think a lot more I am sure that there will be questions. But a really excellent quality, I think, again, evidence of the fact that we have said for some time that when the areas of strengthen and when demand strengthened, that we would be in pole position. That’s another reference to the right on the weekend in Melbourne. But anyway that we are in pole position to take advantage of that growth and our results indicate that.
So, with that notes sort of introductory comments I am happy to take any questions.
Question-and-Answer Session
Operator
Thank you, Amanda. [Operator Instructions] Our first question comes from David Deckelbaum at Cowen. Please go ahead.
David Deckelbaum
Good morning, Amanda and team. Thanks for having me on.
Amanda Lacaze
Good morning, David.
David Deckelbaum
And thanks for the opportunity to refer to something as a blinder for the first time in my life. So it was another good quarter. Yeah.
Amanda Lacaze
I had — yeah, I felt I had to give some context to that because it may not be a term that everybody else knew.
David Deckelbaum
It’s not every day you get a cultural experience with equity research. But that being said, I did want to dig in a little bit more for some color around some of the conversations with Japan and JARE alone with the interest sort of being deferred now. You talked about, obviously, there seems to be ongoing conversations around expanding capacity outside of China. You mentioned one or two more sites. I suppose that one of these sites would be potentially expanding capacity in Malaysia and just wondering if you could provide any more clarity on how quickly something like that might come to pass?
Amanda Lacaze
Yeah. Sure. Thank David. So, yes, I think, that any time that you are talking about a brownfields expansion, it is going to be a much shorter time to market than a greenfields development. So, for example, and particularly as people are looking at sort of other projects that — proposed projects, when you think about our Kalgoorlie facility, it’s had major projects status with the Federal Government, lead agency status with the WA Government really a high priority, very supported project.
But the simple process is that there are approvals, processes and studies, and all of those things that need to be complete. And so from go to grow, bearing in mind that we actually really know what we are doing, the team who are building this plant have been to the Malaysian plant and operated the Malaysian plant. We are still talking about sort of from when we as a company absolutely had clarity on what we were going through to where we think we will have this feed on is probably close to three years.
So, as we think about this, any greenfields side is going to have sort of challenges and a longer lead time than the brownfield expansion. As we seek to keep pace with our customers demand, certainly the opportunities to drive greater production at times in Malaysia is part of the mix of the projects that we are looking at.
And we would expect that sometime within the next few months that we will come back with a sort of a firmer pathway that we will see is being able to deliver better outcomes even than our Lynas 2025 Vision. But our view on this is that we don’t tell the market that we are going to do something until we know exactly how we are going to get there. We are doing that work at present.
David Deckelbaum
It sounds like that there’s sort of an imminent path ahead where we might learn something more resolute in the next few months. So that’s certainly encouraging. My fellow-up is just….
Amanda Lacaze
Yeah. I know that lots of people like to sell blue sky. We actually like to sell confirmed plants.
David Deckelbaum
Yeah. Fair enough. The — my follow up is just on the run rate, you all obviously pointed out, March having running at 600 tonnes of separated NdPr, it’s amongst the highest levels we have seen from you all in several years. I guess as we think about the remainder of the year and I know we are going into conversations around increasing capacity, is there enough debottlenecking work at Mt. Weld right now to sort of feed that run rate, assuming everything is functioning properly, kind of the rest of this fiscal year?
Amanda Lacaze
That’s our objective. We had some additional work that we are doing at Mt. Weld, because bear in mind, we are trying not only to feed the improved production rate to Malaysia, but to build a stockpile ahead of the feed on in Kalgoorlie and so the team in Mt. Weld is very focused on one or two areas, which really if we can release those bottlenecks will give us improved production there as well.
But under any circumstance, we need to increase our production at Mt. Weld and so we have a project team as our best and brightest actually working on exactly what does that look like and how fast can we get that done. And in the areas where we know that we really need to get a big step up in throughput, we actually have already placed some of our long lead time items, because none of these things can be spent on a dime.
So that’s a better term, you would know in the U.S. that we can do that, so we are sort of looking to be ahead of the curve at present, in terms of making sure that we have got, those things that again take the longest time to get on site actually ordered well ahead of time.
David Deckelbaum
I appreciate the responses. Here is too many blinders ahead.
Amanda Lacaze
We like blinders. There’s another not so very polite term that is used in Australia as well. But I am not going to use it on this call.
David Deckelbaum
Yeah. Not fitting. Thanks, Amanda.
Amanda Lacaze
Thank you.
Operator
Our next question comes from Paul Young at Goldman Sachs. Please go ahead.
Paul Young
Thanks. Good morning, Amanda and team. Amanda, cracking quarterly no doubt not. I’d like to hear the sporting analogy. So that was enjoyable. Amanda just the first one is around the performance of LAMP and looking at the fact that it produced over 600 tonnes of NdPr in the month of March. That’s a great result, because I thought capacity was 7.2000 tonnes per annum now probably kind of annualized. But I am just wondering, just based on that performance, what do you think is the true, nameplate of this refinery as it stands now?
Amanda Lacaze
I am not going to change for that guidance, which is actually 7,000 tonnes sort of plus or minus. It’s certainly, I know that we have talked previously about 600 tonnes a month. Frankly, you mostly need to have about 31 days in it to have a good shot at that 600 tonnes, 28-day a month it’s a bit tough, although I tell the team I still expect them to do it.
But we had ongoing preventive maintenance, sometimes with the kilns in particular. We have every 18 months we have an inspection of — we have to shut down for a major inspection, those sorts of things. So that’s why we sort of say it’s the 7,000 tonnes — sort of approximately 7,000 tonnes a year, which takes into account that there are some months where it will be difficult for either sort of maintenance inspection or the fact that they showed amounts. It will be difficult to get to the 600.
The team did a really sort of outstanding result in March and the result was actually relatively well advanced from the 600 tonnes. But can we do that every single month, probably not, because we have to manage these other things. But I think that our indication of around about that, that annualized number is definitely within reach so long as we manage all of the variables as efficiently as possible.
Paul Young
Yeah. That’s great. No. It’s a great performance. And then the next question, I mean, is on that just the NdPr mix, which for the quarter just simple math, 34% within the product mix, which is obviously a lot higher than what the resource sits at sort of mid-20s and obviously going through a higher percentage NdPr part of the stockpiles. But how much of it is actually the fact that you are mining through a higher assemblage of NdPr versus the fact that you might be stockpiling the lower value material and just not selling it?
Amanda Lacaze
Yeah. We preference the production and the higher value material through the lab and so one of the things that we did, when I talked about sort of some of our COVID challenges in Malaysia, our biggest challenge through the quarter was actually with our workforce in our product finishing area. And so particularly in February, I think, we really had some challenges getting enough people to mean particularly in our dry area and product finishing, but even amongst our process engineers.
And so, we have eight tunnel furnaces. Generally, we have four of those which are dedicated to NdPr production or Nd or Pr production. In March we brought a fifth tunnel furnace into operation to ensure that we were able to sort of move through all of the material that sort of the upstream effects and cracking and leaching had produced so that we could move that through our product finishing area. So it’s not a reflection of high grading the resource. It is a reflection of sort of production choices.
Paul Young
That makes sense. Okay. And that therefore it’s actually more sustainable over the medium-term, I gather.
Amanda Lacaze
Well, look, we produce our LA and CE to meet the market. We — and it shouldn’t — I know that it’s very easy to dismiss them as just being, yeah, sort of the lower cost items. But as we look at our business and we look at sort of cost per kilo of NdPr produce, that LA and CE and AVE and AJ [ph] becomes credits against that that cost base.
So finding ways to really improve the — every extra dollar that we get in those is really sort of drops through to the bottomline. And we have been — the sales team and the production team have been working very hard to achieve over sort of the market benchmark prices for those materials. We have over — we had seven different contracts which actually give us significantly above market benchmark prices in that area.
But having said that, they don’t equate to the same amount of say cerium in particular that they can produce within the natural profile, so we do produce to ensure that we meet the needs of those contracted customers, but if that then gives us the space to be able to prioritize additional production of NdPr then that’s what we do.
Paul Young
Yeah. That makes sense, Amanda. Last one is probably on the market and demand outlook Amanda just looks like it just keeps on getting better and better the outlook, just an observation and may be comment from you around the long run supply demand balance, considering last week we saw Luka announced potentially 5,000 tonnes of NdPr production from around 2025 onwards and you are looking at bigger expansion plans you are comfortable with, all — both of you are really just feeding into a market deficit?
Amanda Lacaze
So I am — fortunately we have got Pol on the call this morning and Pol is our expert on the market. Having said that, so he will talk a little about the market with respect to your comments about sort of Australian production increasing.
I guess that, we are pleased to see the Australian critical minerals industry continuing to develop. I think I have said previously that the market is positive and there is room for many winners. Our job is to make sure that we win more than anybody else. But I will let Pol make some comments on the market in general.
Pol Le Roux
Yes. Good morning. Well, I was on a business trip for the last several weeks. I confirmed that the demand remains very strong for especially electric cars and wind turbines. And knowing that the electric cars production is a bit limited by the chip silicon reaches a voltage that people expect to ease in the second half of this year, hopefully.
So basically new supply, we don’t see new supply coming up in the very short-term. Meanwhile, the focus for everyone in the place is to produce more because the demand is increasing very fast and will continue to do so for the next at least a year or several years. So we have no doubt on that. the demand remains very strong and we will be in the tight supply situation for quite a while.
Paul Young
Great. Thank you. All right, Amanda. I will handle it on.
Amanda Lacaze
Thanks Paul. Let’s see if the next question okay. Take the back.
Operator
Our next question comes from Hayden Bairstow at Macquarie. Please go ahead.
Hayden Bairstow
Hey. Good morning, Amanda. I will leave the footy analogies for now, but some just a couple of questions. Just following up on what Pol was talking about. I mean, there’s clearly some interesting demand changes particularly in the wind market really what we have seen in the last few weeks, essentially to see what if you are seeing an accelerated sort of order book. We have seen a number of wind projects approved particularly in Europe in the last two months or three months and just facing that versus what we have seen in the spot market on NdPr prices, just — is that just an indication that the China is moving towards its quota and we are getting a bit more volume recovery from them post the Chinese new units that sort of ease things back a little bit just keen to understand the differences between what looks like a really sort of accelerating demand story in particularly from the wind market versus the pullback in spot prices?
Amanda Lacaze
So on China market Pol a chance to respond to that.
Pol Le Roux
Yeah. I think it’s the other way around. I mean, the demand does not grow, because there is more supply. There is more supply, because we all try to produce more including Chinese miners, because the demand is increasing. And the wind turbine project increased substantially, and I guess, you include the U.K. and Europe when you say new projects in Europe, which is geographically correct.
Amanda Lacaze
Yeah. Really…
Pol Le Roux
But I think all the west — all the world is very concerned about the accelerating other resource for energy. I was attending a conference in Paris from the International Energy Agency and all the focus is to secure as fast as possible security of supply, knowing how much gas is imported into Europe from Russia today. So that is a big boost for new energy investments, including wind turbines, not only, but including wind turbines and that’s how it reflects on these announcements.
Amanda Lacaze
And Pol just…
Pol Le Roux
The other point is that a number of these projects are offshore and definitely now the technology of choice for offshore is direct drive and direct drive comes with a lot more magnets. So it means that the magnet demand for wind turbines is speaking accelerate even faster than the overall wind turbine new projects because most of it is offshore or growing number is offshore.
Hayden Bairstow
Okay. Great. Thanks. And just on…
Amanda Lacaze
Pol, sorry. Can I just add Pol, can you just maybe get a couple of comments on what we are seeing in China in terms of whether they quite as hit or basically playing catch up to demand?
Pol Le Roux
I think China is adjusting quotas. It’s a bit funny. With a focus on making sure there is enough areas for to grow downstream where they are actually playing the game and they look at what Lynas is doing and they say well based on this, this is so much more production we need to make.
So that’s good news for us that we are considered very seriously as a reliable supplier and that’s the reason why we push as hard as possible to increase fast. Now I mean the situation supply demand and we were doing that again last week remains very tight, because demand is accelerating as much as the quotas are increased. So we are not entering into an oversupply. We are the lucky ones living in an environment where the demand grows very fast.
Hayden Bairstow
Okay. Great. And Amanda, just a second one, I know it’s hard to talk about anything with the DoD, but just interested in the options for you guys in the U.S. Is it likely that they will push for a heavy rare earths plant first and approve all of that and you will go and build that and then look at integrating sort of a live stream later on or are you still trying to do it all together?
Amanda Lacaze
Yeah. I would basically I’d like to be clear about the fact that this is a single facility, right? And you don’t plan the one and then have two add a stop to it. You need to have that within your overall scope and design right from day one. That’s the conversation that we are having with the U.S. Government.
I think I can say with a great deal of confidence that the U.S. Government recognizes that you know as Lynas is the only proven non-Chinese firm in this space. And yeah, we have provided all of the detailed information and just going through the sort of appropriate processes at present.
For us, this is certainly expanding into the U.S. brings with it sort of we are working on the basis that there will be further development of the industry there and whilst there’s a degree of sort of faith in that, on the other hand, some of the inquiries that we have from some of the inquiries that we have, particularly from magnet buyers in the U.S. either for supply or for partnership give us a great degree of confidence.
Hayden Bairstow
Okay. Great. I will leave it there. Thanks, Amanda.
Amanda Lacaze
Thanks, Hayden.
Operator
Our next question comes from Daniel Morgan at Barrenjoey. Please go ahead.
Daniel Morgan
Hi, Amanda and team. First question comes for up on the very last thing you said, Amanda, on magnet buyers in the U.S., potentially talking about supply or partnership. Is it possible that you would be considering partnering and going downstream and getting involved in magnet making or metal making? Thank you.
Amanda Lacaze
Anything is possible, Daniel. But we would not propose to say very simply, oh, let’s just jump into magnet making. It is a different technology. It requires a different level of expertise and a sort of manufacturing approach. It looks good on a spreadsheet. It’s a bit more challenging to execute effectively.
Having said that, yeah, there are any number of — there are a number of firms which do have expertise specifically in that area or have the sort of material science expertise on which they would be able to build.
And so thinking about had — what that looks like and how that looks, having a rarer separation facility in the U.S. makes most sense if there is a downstream market. We have for years worked with downstream processes to ensure that there is a robust outside China supply chain and that’s the sort of conversations we are having in the U.S. as well.
Daniel Morgan
Okay. Thank you and then strategy to run the plant for the rest of the year. I mean, you are close to full capacity in the quarter and very much so in March. But you can’t run up that level all year without an uplift in processing permits. And was that just striking all the iron ore produced while the price is strong or what are your plans for the rest of the year, do you throttle back in the December quarter and do maintenance or something? Thank you.
Amanda Lacaze
Our intention is to continue to operate at maximum rates. We have some carryover from the last couple of years, which is definitely helpful and we continue to engage with our regulators in Malaysia.
Daniel Morgan
Okay. So if you did not consume all of your permits last year, you can carry that over. It doesn’t get extinguished in a year?
Amanda Lacaze
We have some approved carryover yes.
Daniel Morgan
Okay. Thank you. And just the sales mix, I appreciate that you produced a lot more than I think anyone expected, but the average price received per kilo was a little bit lower than I expected. Is it possible to just ask about your sales mix, did you sell sales mix, did you sell more lanthanum and cerium in proportion versus NdPr in the quarter or can you just comment on sales mix?
Amanda Lacaze
Yeah. No. It’s less about the mix than it is about instead of the way that our contracts with our customers operate. We had some catch up deliveries to make on quarter two purchases from some of our very significant customers. So, yeah, the way that this works we think we sell at a price that we contract to supply. It doesn’t means that we are sort of slower on the up but we are also slower on the down.
So that’s really just this is just a reflection of the way that our contracts work which is different from just looking at a spot price on a day-by-day basis. We remain firmly of the view that having our stronger contracts with our key customers is a much better thing for our business and our shareholders than selling into an uncertain spot market.
Daniel Morgan
Okay. That’s very clear. Thank you for your answers.
Amanda Lacaze
Thanks Daniel.
Operator
Our next question comes from Reg Spencer at Canaccord. Please go ahead.
Reg Spencer
Thank you. Good morning, Amanda and team. I am not going to let the opportunity pass by without throwing in another football analogy, so I am hoping you can help me tackle, a couple of questions for you, Amanda.
Amanda Lacaze
Yeah. Right. Okay.
Reg Spencer
So obviously construction activities picked up in Kalgoorlie and I think last quarter we had a discussion around what the capital expenditure rate is going to be will lead into commissioning on that that what was the expenditure in the quarter if we could sort of back up and add around the AUD30-odd million, when does that CapEx really start to ramp-up and what does that curve the looks like as we move through the next year in a bit.
Amanda Lacaze
Well, I think, AUD30 million is a fair bit to spend, right? We will have a much bigger quarter this quarter albeit I would expect that it’s going to be well in excess of double that. As you look at where we have got to and I think I talked about this as the half yearly, I think, that we have now committed well in excess of — we have committed to almost all of our equipment, which is around about sort of AUD200-million plus and a lot of the civil work as well.
So we have a very good view of sort of our pipeline and how we are going with that contract versus our original budget. We got some overs, we have got unders and we are still well within the contingency even with the capital of scope increases on the project.
Reg Spencer
Okay. Great. Thank you. I am very interested in your comments as well following some of the other guys that are talking about your production run rates, capacity utilizations and you mentioned that potted plant at the moment would be to build up a stockpile ahead of commissioning in Kalgoorlie. What kind of inventory build or stockpile would you be looking for as we move into Q1 and how does that gel with how we might look at potential production and sales volumes over the next nine months to 12 months?
Amanda Lacaze
It’s quite a big question, Reg. The answer I am having is stockpile as big as we can make it. So we have isolated an area in Mt. Weld where we do have some product already on that stockpile. We are looking at other options for opportunities to store additional material.
It’s interesting to note that we probably had more on the stockpile at the end of the last quarter than we do this quarter. We have had to dig into some of it to continue to grow. We have actually increased our concentrate inventory on onsite in Malaysia for all the reasons that we have discussed previously with…
Reg Spencer
Yeah.
Amanda Lacaze
… sort of uncertain logistics, et cetera. And so the fact that we had already started building that stockpile is an important part of that. We would expect that we will have at a minimum sort of maybe accordance with two cracking and leaching plants operating with casually in ramp up mode. So it’s not going to require twice as much, but it’s certainly going to require that we have got material to feed it.
So Mt. Weld has got a lot of our love and attention at present in terms of really being able to grow our throughput and that how do we sort of incrementally increase the amount that we are pulling out there, but then also how do we make a step change?
Reg Spencer
Okay. So, as we get closer to Kalgoorlie commissions, if we are seeing any major increase in production rates, it’s not as if all of that’s going to initially be solved, you may need some material to fulfill commissioning, obviously, in Kalgoorlie, that makes sense. Just one last question for you, Amanda, comments around strong demand, I think we all kind of get what’s going on there. Are you able to help me out and maybe one for Pol, but trying to connect the dots between short-term pricing movements and noting that that if they pay up prices, this rollover have been to 20% over the last few weeks versus what’s happening in demand? Is just a short term shift in customer behavior as to how they think about inventory builds and what that means for price action? Just kind of curious for your comments around that strong demand don’t necessarily gel well with pricing falling over 20% in the last month or so?
Amanda Lacaze
Yeah. I would like Pol make some comments on this as well. But I would sort of remind you all, because I know that you have had this experience, we will pay your hair out if you try to create a perfect time series analysis on the rare earths market connecting supply, demand and price. It is still significantly affected by Chinese Government policy and whilst our evidence is greater control and the Chinese market needs to improve pricing outcome.
So at the same time, some of the rhetoric which has come out of the Chinese Government is that they would see that a moderated price would be more beneficial to industry. So I think that that’s what we have seen just over the last month or so.
But we don’t — we are always alert to the fact that the Chinese Government can still really influence price significantly, which is why we plan our business on the basis that we still need to be able to be successful, even if the price is skinnier than it is at present. But I will pass to Pol if he has any further comments that he would like to make.
Pol Le Roux
Oh! Yeah. I mean, yeah, very right price is decided by Chinese simply because they supply most of the NdPr. Just one point to keep in mind, the fundamentals are unchanged. You have one year of continuous price increase and two weeks of price adjustment. So there is no conclusion to draw from two weeks drop after one year increase.
And keep in mind that 30% of the NdPr supply comes from recycling. Recycling factories basically collect swaths from magnet making mainly in China and the way to make money to buy low and sell high. So at some stage all on your speculative mindset, you feel like the price might go down tomorrow you sell or you need cash for whatever reason and these days probably there are some difficulties in the Chinese economy, so you sell your inventory of extra recycling production and that is substantial.
There is not so many markets that includes 30% loop of recycled product and that offering explains the short-term variations and the discrepancy sometimes between supply demand and price trend, because simply you have the 30%, but can be accumulated when people feel like the price will continue going up and when they worry they sell the cash in and then you have the short-term a bit of oversupply that is not changing the fundamentals.
Reg Spencer
That that makes, Amanda and Pol. Thank you for that. That’s 30% recycling number is a little larger than I might have understood, but perhaps, we can take the concession…
Pol Le Roux
It will basically 25%, 30% doesn’t change a lot, it’s a lot.
Reg Spencer
Okay.
Amanda Lacaze
So just to bear in mind that’s not from end of life products, that’s from when you…
Pol Le Roux
Right.
Amanda Lacaze
… make that favorite back and…
Reg Spencer
Okay. The…
Amanda Lacaze
…when you shape it into the off cuts of the maintenance, basically, and it can be…
Reg Spencer
Yeah.
Amanda Lacaze
… held and taken into the maintenance and landing supply chain as those who are holding that material to. So, like I said, we are highly alert to the fact that the price is always responsive to Chinese Government policy.
And the second thing that we have seen over the many years, it’s also highly responsive to speculation and sort of within the supply chain as well. But Pol point the fundamentals are strong and we expect the fundamentals will remain strong. And who would have thought that we would be looking at AUD130 kilo price in tank. Oh, gosh, isn’t the price a bit soft?
Reg Spencer
Okay. That is true. That is true. Thanks, guys. I will pass it on.
Operator
Our next question comes from Trent Allen at CLSA. Please go ahead.
Trent Allen
Good morning, guys. Good results and congratulations. Most of the good questions have been asked. So I will just — I am curious, I think you referred to this before, sales revenue does exceed cash receipts. Can we expect that to rebalance over the next couple of quarters and then eventually cash receipts exceed revenues? Is that the way it works? That’s my first question.
Amanda Lacaze
So we have I think in the history of our company zero bad debt. So the invoice will always ultimately convert to cash.
Trent Allen
Sure.
Amanda Lacaze
And…
Trent Allen
How long will it take, though, is the current quarter or does it arrive in a rush or does it kind of sort of smooth its way through over the next few quarters?
Amanda Lacaze
I am looking at today’s forecast which has a pretty big number in for April, actually.
Trent Allen
Sure. Okay. Thanks. And my second question is just have interest around your interest payments. Of course, US$11.5 million not too much money for you guys these days, but you have deferred it. Is that just a gesture of goodwill from JARE or what’s the reason for it?
Amanda Lacaze
No. As we indicated in the release, we continue to talk with JARE about our partnership moving forward, as I have indicated with plenty of areas where we want to continue to develop the business, all of which helps to secure supply chains for the Japanese industry. And so as we are looking at those and opportunities, continued development of the JARE partnership, we reached the decision that it was best to just push us out while we can plated some of those discussions.
Trent Allen
Sure. I can read between those lines. Thank you. That’s all. Thanks.
Amanda Lacaze
Thanks, Trent.
Operator
Our next question comes from Robert Richardson at Clearview Retirement [ph]. Please go ahead
Unidentified Analyst
Good Morning, Amanda, and congratulations on your blender over quarter.
Amanda Lacaze
Yeah. Hi, Bob. Great. I felt you must be coming into us equation because you had and another analogy to throw in, yeah.
Unidentified Analyst
Most of my concerns have been addressed. I am encouraged to hear of progress with sort of discussions in Washington that you mentioned, would not be correct in assuming that for practical political reasons, greater U.S. independence from China rare earths sources must lie with building facilities inside USA rather than here or Malaysia?
Amanda Lacaze
I think that politically that’s definitely their choice. On the other hand, where we are keen to ensure that everyone understand that any short-term demand, and I mean, anything and under sort of about a three-year timeframe, has to come from the Malaysian facilities, so everyone should be interested in what goes on in Malaysia.
Unidentified Analyst
Okay. Lastly then does it look as though we are nearing the end of the cap that you have had for so long on production?
Amanda Lacaze
Pol and his team in Malaysia are absolutely. Yeah, they are absolutely delivering an outstanding ongoing performance. It’s certainly our intent to continue that. But in both locations in Malaysia and also in WA, we are continuing to deal with COVID restriction, so we are not seeing quite so much, I will say, for example, on the East Coast of Australia.
So on the lows anyway, there’s so navigate that. I am allowed to give guidance, but the plants running well. We have got strategies in place to deal with the most difficult as the external conditions and we are very pleased with the third quarters production performance.
Unidentified Analyst
Thanks very much, Amanda.
Amanda Lacaze
Thanks, Bob. Thank you. Well.
Operator
[Operator Instructions] Our next question comes from Tim Ainsworth at Talfain. Please go ahead.
Tim Ainsworth
Hi, Amanda. Just circling back to some comments that you and Pol made was over eight months ago, or sorry, over 12 months ago, I can’t remember exactly when. But you noted that you weren’t seeing any expansion of ex Chinese magnet makers, which is this and that obviously included the Japanese magnet makers. Has that Chinese — are you seeing any signs of capacity, you have increases in the western magnet makers?
Amanda Lacaze
Hi, Tim. Nice to hear from you. Certainly, Japanese magnet makers are increasing capacity. I will let Pol once again talk to that specifically.
Pol Le Roux
I am not sure I can disclose what our customers are doing. But there is at least one magnet maker from Japan increasing substantially their production capacity and that’s the reason why our demand increased so much is in take. But I can’t — I don’t think I can mention more details on that.
Tim Ainsworth
Hi…
Pol Le Roux
Nice to talk to you.
Tim Ainsworth
Hi, Pol. Is there anything outside the principal customers or Japanese make, as you are seeing anything in Europe or America or any solid plans towards initiating some NdFeB capacity?
Pol Le Roux
They are some, let’s say, conversation are more serious than before. So there are some real project being studied, but they are being studied. They are not building the facility yet, whereas Japanese are. So for Japanese as a matter of months, whereas for others it’s probably a matter of one year, two years.
Tim Ainsworth
Okay. That’s encouraging. Thank you.
Pol Le Roux
Yeah.
Amanda Lacaze
Thanks, Tim.
Operator
Thank you. We have no further questions. So, Amanda, I will pass it back to you. Thank you.
Amanda Lacaze
Well, thank you all. We have already blown the results. Now, I promise not to subject you to this again find a different analogy. But thanks for your continued interest and support and we are looking forward to bringing it home through to the end of the financial year.
Operator
Thank you very much. Ladies and gentlemen, that does conclude the call for today. Thank you all for joining. You may now disconnect.
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