Lynas Rare Earths: How to terminate the toxic business without paying compensations

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While Lynas Rare Earths makes tonnes of money, Malaysia is left with tonnes of radioactive wastes.

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July 1, 2023 is the month that will determine whether the new administration of Anwar Ibrahim cares about the risk of radioactive wastes on the people, or merely pay “lip service” just like previous governments. The Pakatan Harapan-led unity government has been fighting against the toxic business of Australian miner Lynas Rare Earths on Malaysian soil for years.

But when then-Opposition Pakatan Harapan stunningly defeated ruling government of Barisan Nasional in the May 2018 General Election, PM Mahathir Mohamad granted a three-year extension license to Lynas to operate in the country. Despite public protests from environmentalists and even lawmakers of his own government, Mahathir insisted the radioactive wastes were safe.

The ex-prime minister argued that there was no danger in the wastes produced by the rare earths plant in Gebeng, Kuantan, because the experts said so. He also said the country cannot lose credibility in terms of dealings with FDI (foreign direct investment). However, he could not explain why Lynas built a RM2.5 billion plant here instead of the company’s backyard in Australia.

Neither did Mahathir say who those experts were. Hilariously, at the same time, he admitted that Malaysia cannot export the wastes because no one wants to accept it – not even Australia wanted the toxic materials produced by its own company. Even if the level of radioactivity in its waste is low, the “total amount” of waste produced is huge.

If those wastes were incredibly safe as claimed, exactly why the Aussie company travelled thousands of miles to Malaysia when it could invest and create jobs at home? In fact, no Western countries wanted Lynas’ business. Only Malaysia was dumb enough to welcome the radioactive plant. And only the corrupt government of Najib Razak allowed Lynas to operate close to heavily populated areas.

Since Lynas started its operation in 2012, the plant has produced approximately 1.08 million metric tonnes of radioactive waste. Of course, Mahathir had little interest in public safety. After all, he was responsible for the 1982 Bukit Merah radioactive pollution thanks to Asia Rare Earth Sdn Bhd (ARE), whose biggest shareholder was Mitsubishi Chemical Industries Ltd.

Mahathir didn’t care about safety because the plant was not built next to his mansion. During his 22-year iron-fist rule (1981-2003), he had defended the Japanese company despite it irresponsibly produced so much radioactive that it contaminated residents of Bukit Merah, leading to a high number of birth defects and leukaemia. The factory was eventually closed in 1994.

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Interestingly, Mahathir had granted the three-year licence extension to Lynas just days before his government collapsed and seized by Muhyiddin Yassin, his once trusted lieutenant who betrayed the democratically-elected Pakatan Harapan government. As a compromise, the extension – effective from March 2020 to March 2023 – came with some conditions.

One of the conditions is that it cannot import and process rare earths concentrate after July 1, 2023. Yesterday (Feb 15), the new government of Anwar renewed Lynas’ operating licence for yet another three years but said the licence could be revoked if it fails to comply with the conditions prohibiting the production of radioactive waste in the country – dealing a blow to the company.

Essentially, Lynas has to close the cracking and leaching of its rare earths processing plant in Kuantan. This is like telling the Kentucky Fried Chicken that they have to stop slaughtering chicken in the country. It is as good as telling Lynas to close shop. The Australian company said it had asked for the conditions to be removed and appeal the government’s decision.

Anwar administration’s decision could be seen as a clever trick to kick out Lynas from the country without having to pay compensations which might arise in the event of an explosive legal battle between the company and the government. But it could be also a delay tactic by the new government if Lynas is allowed to extend the July 1 deadline.

Malaysia’s Science, Technology and Innovation Minister Chang Lih Kang said – “The unity government is committed to creating a business-friendly environment and understands the importance of the rare earth industry. However, no party has the right to continuously produce radioactive waste in our homeland.” At the same time, however, Chang said Lynas could appeal to extend the July deadline.

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Listed on the Australian Securities Exchange, the Australian rare earths mining company announced it ended the financial year 2022 with a whopping A$934.2 million of cash and short-term deposits. Its December quarter alone reported sales revenue of A$232.7 million – up 42% quarter-on-quarter. While it makes tonnes of money, Malaysia is left with tonnes of radioactive wastes.

Another condition, which was set in 2020, included building a Permanent Disposal Facility (PDF) to store radioactive waste. But the fact that it is only 32% built even after three years suggests that Lynas was dragging its feet. The radioactive wastes are now being stored in a place shaded by a roof instead of properly stored in an enclosed space – a clear sign that Lynas should be rejected.

It is highly irresponsible for a rare earths mining company that started its operation as early as 2012 to claim ignorance about the need to build a PDF. The best part – Lynas has been given “12-year tax exemption”. Why should the unity government continue to import toxic wastes and provide cheap labour to the greedy company that contributes zero taxes to the country?

In reality, it’s hard to ignore the factor of corruption and external political pressure when Lynas was approved by the previous government to operate in Malaysia. By now, it’s obvious that the plant doesn’t meet the best practice standards, despite the company’s dubious claims that its raw materials and radioactive wastes were not dangerous.

Just because it is less dangerous today does not mean it will not contaminate the soil and water and the environment years down the road. Prime Minister Najib Razak, and ministers who blindly defended the company (like PAS leader Tuan Ibrahim) based on some reports which could be customized to suit Lynas, had either received kickbacks or simply too dumb to understand the risks.

The largest producer of rare earths outside China could have received funding from the United States as it tries to rival China’s dominance in mining rare earth metals. The US was once a dominant player in the rare earths supply chain that is crucial for some of the most important materials involved in electric vehicle production, battery making, renewable energy systems and technology manufacturing.

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Rare earth metals are actually more abundant than their name suggests, but the extracting, processing and refining are a tricky and dirty business. Purifying one tonne of rare-earth elements requires 200 cubic metres of water. In the process, the water is contaminated with heavy metals and ends up untreated in rivers, soils, and aquifers. The extraction of rare metals has become one of China’s most polluting industries.

China only became the dominant player after 1980s when the US abandoned the industry due to environment reason. According to one 2018 report from the US Department of Defense, China “strategically flooded the global market” with rare earths at cheaper prices to drive out and deter current and future competitors. Trade wars and retaliatory tariffs have forced the US to return to the business.

Lynas recently received US$30.4 million in funding from the Pentagon to build a Texas light rare earths processing facility. Still, it’s too early to tell if it could proceed smoothly without hitting a combination of environmental, technical and political issues. Many rare earth elements reside among mineral deposits with radioactive materials that can leach into the water.

Therefore, it would not be surprising if Anwar, who is known to have a close relationship with the Western nations, might close one eye and allows Lynas to import and process rare earths lanthanide concentrate after July 1, 2023. The new premier, who says his priority was cost of living, might not have the appetite to rock the boat of attracting foreign investment.

Australia could call the US to pressure Malaysia to relax the strict conditions based on two reviews by the International Atomic Energy Agency that claimed the plant adheres to the rules and is low risk. The Malaysian government’s decision will interrupt the supply of neodymium and praseodymium (NdPr) – the magnets as crucial components of everything from iPhones to weapons system.

Canberra can whine and bitch all it wants. Not only it still does not have a permanent disposal facility (PDF) for its radioactive waste after so many years, the Water Leached Purification (WLP) residue which contains elements such as thorium, uranium and heavy metals can cause diseases like bone, lung or liver cancer. And the WLP radioactivity is six times higher than Malaysia’s limit.

The burning question is whether PM Anwar will “kowtow” to Washington. Pakatan Harapan managed to form the unity government only after partnering with bitter rival Barisan Nasional coalition. He should be reminded of the risk of losing supporters who see no difference between him and previous incompetent premiers if Lynas continues to enjoy perks and break all the conditions imposed. – Finance Twitter