Lynas Corporation for dummies (and Australians)

I do not need to write a ‘for dummies’ guide for Malaysians. They have made up their minds about Lynas and are now quite knowledgeable about the issues. They have learned more about rare earth and radioactive thorium than many of us will ever learn in a life time and they want Lynas out of their country.

Instead, I write this for Australians for whom media coverage of this story has been sparse. It is difficult to work out why the media have paid scant attention to this story. I would have thought that this was a story made for journalists.

This story involves our relationship with Malaysia. Considering that Malaysia is one of our closest neighbours and a country whose cooperation we vigorously strive for, I would have thought that an issue like Lynas should be big news in Australia.

Sure, this might not be a diplomatic row between political leaders. Our Prime Minister is not calling theirs ‘recalcitrant’ and theirs is not threatening trade sanctions.

And of course, this story does not involve asylum seekers.

No, this is different!

While our respective Prime Ministers get along nicely and make funny deals like swapping refugees, a whole country, 28 million Malaysians, are starting to feel anger towards Australia.

In this modern age, bilateral relationships between two Prime Ministers are not nearly as important as the relationship between a body of 23 million people and another body of 28 million.

Australians are becoming quietly hated by Malaysians and nobody thought to tell Australians of this?

This story also involves the crucial ingredients to some of the most important high tech inventions that we have come to rely on in the 21st century. If Lynas fail to get their product to markets, the price of iPhones, iPads, hybrid cars and wind turbines will increase across the globe.

This story involves a three way trade battle between Australia, Malaysia and China.

Most importantly, this story may involve a change of government in Malaysia– for the first time in 50 years.

Dear Australians,

Let me tell you about a company called Lynas.

Lynas is a mining company based out of Sydney. Their main mining tenement is at Mt. Weld, Western Australia, just 30km north of Laverton.

Their business model consists of digging these rare earth ores from the ground at Mt. Weld, processing them up a bit at Laverton and then trucking them to Fremantle before shipping them off to Kuantan on the east coast of the Malaysian peninsular. In Kuantan, they will further process their rare earth ore into rare earth oxides. Then they will make billions selling these oxides to buyers in America, Japan, France and China.

Your view of Lynas largely swings on your view of why Lynas made the decision to process these minerals in Malaysia rather than Australia.

It’s about the money!

It is cheaper for Lynas to operate in Malaysia than in Australia. Lynas knows that they will make more money for their shareholders if they operate in Malaysia rather than in Australia. Furthermore, Malaysia has a particular comparative advantage.

The disagreement between Lynas and those that oppose them stems from the source of this comparative advantage.

Lynas states that they built their Lynas Advanced Materials Plant (LAMP) in Kuantan because of the availability of cheap skilled and unskilled labour, chemicals and fresh water. This may all be true, but it seems fanciful to me that this would be the main motivating factor for putting this plant in Malaysia rather than in Australia.

To understand why Malaysia is such an attractive destination for Lynas, one has to understand some important differences between Australia and Malaysia – beyond the difference in the cost of inputs.

The United Malays National Organisation (UMNO), the ruling party in Malaysia has ruled for over fifty years. Nominally democratic, elections in Malaysia are ugly affairs, routinely tarnished by allegations of vote rigging, voter intimidation and strict control of the media by the Government among many other issues.

This is where Malaysia’s actual comparative advantage lies in heavy industries such as the processing of rare earth.

Without question, the processing of rare earth pollutes. Massive quantities of super heated sulphuric acid are required to separate the rare earth elements from the rubbish elements they are found with under the ground.

In California, rare earth miner Molycorp was shut down in the late 1990′s after it was found out by government regulators that tons of radioactive tailings spilled out into the California desert many times over a number of years.

In the northern region of China, rare earth processing has done untold damage to the livelihood of farmers and local residents. Much of the truth of what has happened in China will probably never be told.

In Malaysia itself, Japanese company Mitsubishi processed rare earth in the 1980′s and early 1990′s. Their shoddy operation is believed by public health experts to have done untold damage to a whole generation of Malaysian children in the area, some born with shocking birth defects and others contracting childhood leukaemia at five times the national average.

It is hard to think of an industry in more desperate need of democratic oversight. The rare earth industry needs to be monitored by bodies that source their authority from the very people that stand to lose the most if things go wrong.

The Malaysian Government does not represent the people of Malaysia. They represent the vested interests of big business. They represent the 1% of Malaysians that can afford to flee the country should it ever become necessary.

The problem is that democratic oversight is expensive.

If Lynas were to conduct their operations in Australia, or any other country with a strong democratic tradition, they would be required to negotiate with the local communities. They would be required to present an argument to the voters that their presence brings benefits that outweigh the inherent, undeniable risks in processing rare earth. They would be required by largely incorruptible public servants to adhere to stringent public health and safety regulations that reduce the risks to the public, down to the lowest level possible.

This is not the case in Malaysia.

The Malaysian public did not even find out about Lynas operations in Pahang until the construction of LAMP was almost finished. They read about it in the New York Times.

Access to official documentation surrounding the licensing scheme is a big farce.

Whistle-blower engineers working on the project tell of appalling breaches of basic standards in the construction while UMNO politicians seek to sow discord in the community claiming that Malaysians opposed to the Lynas plant are seeking to assist the rare earth industry in China.

These materials will eventually come to market. Somewhere in the world, these materials will be processed and then turned into iPhones, hybrid cars and wind turbines. This environmental activist accepts that as inevitable.

However it should not happen in Malaysia where the institutions are not mature enough to deal with opportunists like Lynas Corporation. More than skilled labour, fresh water or sulphuric acid, it is democratic oversight that makes doing business more expensive in Australia for Lynas. This is where Malaysia has its  comparative advantage.

However, the decision by the Malaysian Government to go ahead in the processing of dangerous chemicals is one that its voters will one day seek to disown.

That day may come sooner rather than later.

Lynas have now been granted a temporary operating license and the likelihood now that UMNO politicians will do anything to prevent Lynas from operating seems remote.

All eyes now are on the general election due no later than April 2013. If the results of those elections are much the same as the last 50 years, Lynas will go ahead in Pahang. However it is by no means a sure thing. At the 2008 general election, Pakatan Rakyat, led by the enigmatic Anwar Ibrahim, made unprecedented progress toward establishing a genuine two coalition democracy.

Certainly the opposition has made great headway on the back of the Lynas issue. A nationwide rally held months ago brought tens of thousands of people out onto the streets in protest. In a country where streets protests are typically met with riot police eagerly wielding batons and tear gas, the numbers present at those protests indicate significant public discontent at the way in which the Malaysian Government have handled this Lynas matter.

Will Putrajaya (the administrative capital) fall to the opposition?

It is certainly possible.

Since an Australian mining company may have a hand in this, perhaps it is time that the Australian media started to look  at this story more closely.

 

Ryan Albrey is from Perth, Australia.