KUALA LUMPUR, June 30 (Reuters) - Malaysia has ordered Australian miner Lynas to comply with an independent panel's recommendations in order to receive a pre-operating licence for a rare earths facility.
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The $230 million Malaysian plant is part of a plan by Lynas to process rare earths from its mine in Australia and bridge gaps in global supply after top producer China slashed its export quotas last year.
The proposed plan has hit a storm of protests on concerns that it could endanger the health of nearby residents.
Following are questions and answers on the proposed plant, and possible implications of any delay in its operation.
WHAT IS DRIVING THE PROTESTS?
Fear of a repeat of a controversial rare earths factory operated by Mitsubishi Chemical in the northern state of Perak, which was closed down in the 1990s after critics say it was linked to birth defects and at least eight leukaemia cases.
The protest against the Lynas plant is driven by local residents and green groups but is also increasingly being taken up by the country's opposition, which is hoping to capitalise on the unhappiness to drum up anti-government sentiment.
HOW POLITICALLY SENSITIVE IS THE LYNAS PROJECT?
Increasingly, as it comes ahead of general elections which could happen as early as the end of2011. Prime Minister Najib Razak wants more foreign investment, but is wary of sparking voter anger after his ruling coalition suffered record losses in 2008 national polls.
Najib earlier this year scrapped a proposed coal-fired power plant by state power firm Tenaga in Malaysia's Borneo state of Sabah after mounting protest over the project's environmental effects.
Following the Lynas protest, the government also cancelled a memorandum of understanding with Hong Kong-listed CVM Minerals Ltd to conduct a feasibility study to explore and mine rare earth minerals in Perak.
WILL THE LYNAS PROJECT BE SHELVED?
Widespread anger by residents and green groups could put pressure on the Malaysian government to move cautiously on this project. Some analysts think the authorities could delay a decision until after the next general election.
Najib's ruling coalition generally looks likely to retain power but a failure to reverse its 2008 polls losses would increase pressure on him to double efforts to shore up voter support, which could put the Lynas project in jeopardy.
WHAT WILL HAPPEN TO GLOBAL SUPPLY SCENARIO AND PRICES?
With the Malaysian government holding off approval for the processing plant, Lynas might have to stockpile the rare earths or look elsewhere to set up the facility. Either way, there will be a delay.
This could lift the supply deficit in the global market beyond a peak of 18,734 tonnes that Goldman Sachs has estimated for this year and delay a surplus scenario expected in 2013.
The concerns in Malaysia could further boost prices of rare earths that have risen due to top producer China cutting export quotas and strong demand for these commodities used in products ranging from cell phones to hybrid cars.
The price of cerium oxide -- the most abundant rare earth that is used in batteries and petroleum additives -- has more than doubled to $135 a kilo on May 9 from $52.62 in the last quarter of 2010, Lynas data show.
CAN CONSUMERS CAN RELY ON OTHER RARE EARTHS PRODUCERS?
Consumers may turn to U.S.-based Molycorp . The firm is modernising a rare earth mine and processing facilities at Mountain Pass in California, which was acquired in 2008 from Chevron Corporation .
Analysts say new mine production from Mountain Pass will start in 2012 although small-scale production from stockpiled rare earths has already resumed. Molycorp will produce 3,000 tonnes this year and that will quadruple next year.
(Editing by Liau Y-Sing)