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Lynas Corporation For Dummies (and Australians)

Anti lynas activist jakarta

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

So instead I write this for Australians for whom media coverage of this story has been sparse. It is difficult to work out why the mainstream media have paid such little attention to this story. After all I would have thought this story ticks a number of rather important boxes for journalists.

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This story involves our relationship with Malaysia. Considering they are one of our nearest neighbours and a country from whom we need so much cooperation and help I would have thought that an issue like Lynas should be a big news story in Australia. Sure this might not be a diplomatic row between political leaders. Our Prime Minister isn't calling theirs 'recalcitrant' and their Prime Minister is not threatening trade sanctions. This story doesn't involve a silly scheme to swap asylum seekers. No this is different. While our respective Prime Ministers get along nicely with one another making deals to swap 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 market the price of iPhones, iPads, hybrid cars and wind turbines will increase across the globe. This story involves a 3 way trade battle between Australia, Malaysia and China. The outcome to this story will affect the diplomatic relationship between China and Japan. Although this part to the story is better told some other time.

This story might involve a change of Government in one of our nearest neighbours. For the first time in 50 years.

Dear Australians, let me tell you about a company called Lynas.

Lynas are 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. There in Kuantan they will further process their rare rarth 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. Nobody on either side of the debate would argue that it is not about money. Plainly it is cheaper for Lynas to operate in Malaysia rather than Australia. Plainly Lynas have done their sums and they know they will make more money for their shareholders if they operate in Malaysia rather than Australia. Clearly Malaysia has a comparative advantage in the processing of rare earth.

Stop Lynas Coalition

Stop Lynas Coalition (Photo credit: existangst)

The disagreement between Lynas and those that would oppose them stems from the source of this comparative advantage. Lynas say that they have built their LAMP (Lynas Advanced Materials Plant) in Kuantan because skilled and unskilled labour, chemicals and fresh water is cheaper. This may all be true, but it seems fanciful to me that this would be the main motivating factory for putting this plant in Malaysia rather than Australia.

To understand why Malaysia would be such an attractive destination for Lynas, one has to understand some important differences between Australia and Malaysia. More important than just the difference in the cost of sulphuric acid.

UMNO (United Malays National Organisation), the ruling party in Malaysia at a federal level and also in the state of Pahang where this plant is located, have ruled for over fifty years. Nominally democratic, elections in Malaysia are an ugly affairs, routinely tarnished by allegations of vote rigging, voter intimidation and strict control of the media by the Government.

This is where lies Malaysia's comparative advantage in heavy industry such as the processing of rare earth.

Without question the processing of rare earth is a dirty business. 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 were shut down in the late 90'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 heavy damage to a whole generation of Malaysian kids, 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 do not represent the people of Malaysia. The 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 community. 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.

That just ain't the case in Malaysia. The Malaysian public did not even find out about Lynas operations in Pahang until the LAMP was almost finished construction. 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 an inevitability. However it shouldn't happen in Malaysia where the institutions just aren't mature enough to deal with opportunists like Lynas Corporation.

More than skilled labour, fresh water or sulphuric acid, it is democratic oversight that is more expensive in Australia and makes for a more expensive place for Lynas to do business. The comparative advantage that Malaysia has in the processing of dangerous chemicals is one that it's voters will one day seek to disown.

Jalur Gemilang

Jalur Gemilang (Photo credit: existangst)

That day might be coming 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 for later this year. 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 federal election Pakatan Rakyat, led by the enigmatic Anwar Ibrahim, made unprecedented progress toward establishing a genuine two party 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 the Lynas matter.

Will the federal government in Putrajaya fall to the opposition? It is certainly possible and since an Australian mining company might have a hand in this, perhaps it is time that the mainstream media in Australia started to look move closely at this story?

About this Entry

This page contains a single entry by Ryan Albrey published on March 31, 2012 12:50 PM.

Shall we abuse Human Rights (and abolish the Carbon and Mining taxes) to better compete with Africa for Mining Investment? was the previous entry in this blog.

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