I agree with you generally that Lynas has to establish a new production base outside of Malaysia based on the ongoing political drama. The decision to originally locate in Malaysia was sound (10 year tax holiday, access to raw materials - water, chemicals, deepwater port, a government that welcomed a chance to develop a new industry, etc), but the sovereign risk has now become too dependent on the everchanging political process.
The question is how to proceed. LAMP cannot be packed up and moved overnight. Without a duplicate production capability somewhere in WA or elsewhere, then the company is completely at the mercy of the Malaysia government. Appeals to the legal system or WTO are just canards that will take months or years to conclude.
If Lynas announces that they are pulling out of Malaysia, then they need to be prepared for even more pain from the Malaysia government. We think that the government is uncooperative now, but it can be a lot worse. Ask any company who tries to run counter to China authorities - paperwork gets slow walked, decisions get delayed, regulatory inspections and questions get ramped up, etc. If Lynas' feedstock, chemicals or repair parts gets delayed at customs, for example, then the production process grinds to a halt. The government can create a lot more headache if they want to.
The only reason they are even cooperating with Lynas is that they still believe that Lynas will roll over and acquiesce to their demands. The government likes the WES offer because it helps them to have their cake and eat it too: keep good paying jobs and an important future industry in Malaysia while removing all the perceived environmental risks from the country.
If Lynas begins with a separate C&L process line and gets the production stable, then they can take the next step to duplicate LAMP separation in another location. Hopefully they can build up enough finished goods inventory to mitigate the revenue impact while they cross over to a new facility. They can order new equipment and construct the line from scratch with their latest IP and know-how. As soon as Malaysia gets a whiff of their ultimate plan, then there will be hell to pay at LAMP with an vengeful government who realizes that Lynas has moved in an irreversible direction. At that point, Lynas is on their own, hopefully with the support of customers and creditors.
We'll see what Amanda has to say with her mid-day update.
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