On Friday Australian analysts from Foster Stockbroking told investors to get rid off their shares in rare earths miner Lynas Corporation (ASX:LYC), as there is no end in sight for the ongoing problems that have forced the company to halt operations in Malaysia.
Foster believes approval of the Lynas Advanced Materials Plant (LAMP) has been "a drawn out saga" and the approaching Malaysian election is likely to cause further delays.
LAMP has been under attack from residents, environmentalists and even filmmakers ever since Lynas started building it in 2010. Demonstrations have been branded as a “concerted political campaign” based on misinformation by Lynas chairman Nicholas Curtis.
According to Curtis, Malaysians are sabotaging the science-based, regulatory process established in Malaysia and the international confidence in that process.
Critics of the project believe that allowing the $230 million refinery will jeopardize Malaysian’s well being and the environment. Supporters argue that it would be one of the few sources outside China to process rare earths and produce metals used in high-tech.
"Appeals by local groups and the opposition party regarding the environmental impacts of the plant have resulted in LAMP becoming a politically sensitive issue and delayed a final decision on issuing the licence," stated this morning’s investors’ note.
"The appeal against Lynas has been dismissed, the plant has complied with Malaysian and International standards and Lynas has met or has submitted proposals for all conditions stipulated in the issuance of a temporary operating licence."
"However, with an election imminent and given the political sensitivity surrounding the plant we believe the saga will continue."
Currently, more than 90% of rare earths metals are processed in China, a country that has increased export restrictions on these elements as it claims it needs to guarantee supplies for the internal market and protect the environment. The policy has generated protests from foreign manufacturers who rely on Chinese rare earths. They argue China’s restrictions aim to raise rare earth prices artificially to give its own producers higher profits.
LAMP, originally scheduled to start processing rare earths in the third quarter of 2011, could help stabilize rare earth prices.
However, despite Lynas having significant funds to support LAMP, Foster analysts believe the expected delays would cause "balance sheet difficulties" and investors should sell their stakes.