Huge potential helps fuel Wesfarmers play for Lynas

Wesfarmers boss Rob Scott. Illustration: Johannes Leak

On the surface Wesfarmers’ chairman Michael Chaney and CEO Rob Scott seem to have taken an incredible risk in bidding for rare earths producer Lynas. But then step back and you realise that Chaney and Scott have isolated the next boom — much greater electrification. Lynas takes Wesfarmers into the raw materials required for batteries and new appliances but it also has a the potential, longer term, to be a supplier of a fuel for a developing power generation system.

The essence of the Lynas plan to not pretty and is high risk: the storage of low-level nuclear waste in Australia that Malaysia is refusing to store on its own its land. However, in the waste is a substance called thorium. The world is looking for better ways to generate non-carbon electricity and one of the prime candidates is none other than thorium. I hasten to add that thorium is not the only candidate and there is also a lot more work to be undertaken to improve thorium power plants.

We all know that the Lynas rare earths are an essential part of the world’s swing to electrification and batteries. They look set to be a part of a major global growth market but it is a market currently dominated by the Chinese and the western world does not want to be totally reliant on the Middle Kingdom for these essential materials.

Lynas, with its mine in Australia and processing in Malaysia, is incredibly well placed if it was not for the fact that Malaysia no longer wants to store nuclear waste, albeit low-level nuclear waste. There are plenty of places to store the waste in WA but its not a long-term solution given the strong environmental movement in Australia. Longer term, the thorium in the waste must be used.

China also produces radioactive waste from its rare-earths plants and the waste from many of its rare-earths plants is likely to be similar to that which Lynas is currently storing in Malaysia. So, its no surprise that China is at the forefront of the development of thorium nuclear power generators. Back in the 1950s there was a choice of developing thorium or uranium as a nuclear fuel. the Americans chose uranium because it could be used to power submarines. Thorium was put to one side but it’s back now thanks to the events in Japan.

Traditional thorium nuclear reactors have enormous advantages over uranium reactors because, although thorium is still radioactive, the waste produced is not nearly as toxic and requires less storage and thorium can’t be used to make bombs.

But the Chinese are now developing a new generation of nuclear reactors based on thorium. And the early signs are that these new nuclear reactors could transform energy generation. Instead of relying on water for cooling, they rely on molten salt which is far less dangerous. The molten salt cooled reactors can be used inland because they don’t require the same quantities of water. This is very important for China.

The thorium reactors produce very little waste and generate enormous heat which will enable them to produce non carbon electricity and also desalinated water.

Assuming the climate science is right, many areas of the world will have less rainfall and will need desalination plants. The Chinese believe that thorium will provide the answer. China is hoping to make a full thrust into salt-cooled thorium generators in the next decade. Other countries, including Canada, are also working with China on this technology because it looks to have the potential to lower the worlds’ reliance on carbon energy and it does not have the same waste problems as uranium-based nuclear fuels. There will be many more developments and rival fuels in the swing to greater use of electricity.

Already Wesfarmers has taken a small step into non-carbon energy by buying substantial quantities of power from a Western Australia solar farm. In the past decades Wesfarmers was also a major coal producer in Western Australia.

It is a very big step from going from the bags of unwanted thorium waste to thorium power plants in Australia or elsewhere. A lot can go wrong. But if the Lynas waste material proves suitable and the Chinese technology fulfils its promise, then Wesfarmers, via Lynas, has a clear path ahead in the greater electrification boom. The theory might be correct but the application has so far been poor.

It is a takeover thrust that has not proceeded smoothly and it may fall off the rails but if it succeeds it has the potential to be one of the most fascinating strategic moves we have seen in Australia.