⏩ Issue 12: Lynas Rare Earths

Over the past few months we have twice looked at rare earths developers: Arafura and Vulcan, both companies using strong sustainability disclosure to help raise the capital to build. This week we close the loop with one that is already built. Lynas is the largest producer of separated rare earths outside China, which is pretty significant. For a developer, disclosure is about winning the financing. For a producer, the test is whether the promises made on the way up have become liabilities that are properly counted, funded and closed out. That is where Lynas gets interesting.

— Bronwyn

Sources: FY25 Annual Report (Independent Auditor's Report and financial statements), 27 August 2025, 125pp, GRI 14 Mining Sector 2024, climate disclosures voluntarily guided by AASB S2, EY audit. And the 2025 Sustainability Report, GRI-referenced.

Lynas Rare Earths (ASX: LYC) mines its ore at Mt Weld in Western Australia and processes the material at Kalgoorlie and at its advanced materials plant in Gebeng, Malaysia. It is the only producer of separated light and heavy rare earths at scale outside China, which makes it strategically important to the Australian government who are trying to build a supply chain which doesn’t primarily run through Beijing.

FY25 was a year of contrasts. Revenue rose 20 per cent to $556.5 million, but net profit after tax fell to $8.0 million, down from $84.5 million, as the $1.5 billion expansion programme moved into depreciation and the Kalgoorlie plant ramped up. The headlines this year are about price, production and supply-chain politics. The number worth your attention is quieter, and it sits in the part of the report almost nobody reads: the bill for eventually closing the place down.

Every producer takes on a legal obligation to close its sites one day: pull down the plant, manage the waste, and rehabilitate the land once mining and processing end. Accounting rules require that future closure bill to be estimated now and carried on the balance sheet as a liability, even though the money will not be spent for decades. Here is Lynas's number, in the words of its own auditor.

Revenue rose 20 per cent to $556.5 million this year, and that is the figure that made the news. This one did not. Almost $298 million set aside for closure is a large number for a company of this size. Obligations like this live in the financial statements. What is telling is that Lynas's own auditor, EY, singled this figure out as one of the hardest in the accounts to verify, because estimating a clean-up bill that falls decades away takes significant judgement. The growth headline tells you what the business earns. This line tells you what the production quietly costs to unwind.

One of the by-products of processing the ore in Malaysia is a low-level radioactive residue called Water Leached Purification, that has to be stored permanently. During FY25, Lynas finished building the facility to hold it and began filling it.

This is closure happening in real time: a permanent home for radioactive waste, built and filled while the plant is still running. It is an obligation that does not end when mining stops; it runs for decades. And it is growing. The longer-term portion of Lynas's closure and rehabilitation provision rose over the year, from about $241.8 million to $270.6 million and this month, Malaysia's environment department rejected the initial assessment for Lynas's proposed plant expansion and asked for an updated one. The public assessment documents projected the expansion would lift this radioactive residue by 16 per cent. The regulator has signalled it won’t just wave it through.

Development that does not account for closure costs is not really development. It is deferred liability, with the bill pushed onto a later balance sheet, a future regulator, or the land itself. Lynas seems to be a well-run company that discloses these obligations openly, which is exactly why it is a useful example: the closure provision is in the accounts, the radioactive residue facility is described in the report, and the numbers are growing as the business grows.

There is a fundamental issue worth naming, though. The materials Lynas produces go into the wind turbines and electric vehicle motors that the energy transition depends on. However, producing them carries its own environmental cost, paid in radioactive residue and a closure obligation measured in decades. The honest question is not whether to mine these critical minerals; the world needs them. The question is whether the cost of eventually closing the operation is being counted and funded as production scales, or quietly deferred. A regulator in Malaysia has just asked Lynas a version of that question.

Closure and rehabilitation provision
The money a company sets aside on its balance sheet for the eventual cost of closing its sites: decommissioning plant, managing waste, and rehabilitating land. For Lynas, this provision stood at $297.9 million as at 30 June 2025, dominated by the cost of managing residues from its Malaysian processing.

Scope 1 & 2 emissions
For Lynas, Scope 1 is direct emissions from its own operations, such as gas and diesel burned at Mt Weld, Kalgoorlie and the Malaysian plant. Scope 2 is emissions from the electricity it buys. Lynas reported about 148,000 tonnes of carbon dioxide equivalent across both for FY25, up from about 112,000 the year before.

Key Audit Matter
An item the external auditor flags as having required the most judgement to verify. Auditors are required to disclose these, so a Key Audit Matter is effectively the auditor pointing to the numbers that were hardest to pin down. Lynas's closure provision was one.

Permanent disposal facility
A purpose-built, engineered site for storing waste that cannot be removed or reused, in this case the low-level radioactive residue from processing rare earths in Malaysia. Once filled, the cells are capped and must be monitored long after operations end.