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Why the Lynas Corporation share price crashed 26% lower today

One of the worst performers on the local market on Wednesday has been the Lynas Corporation Ltd (ASX: LYC) share price.

At the time of writing the rare earths producer’s shares are down 21% to $1.67. At one stage its shares were down as much as 26% to $1.56.

What happened?

This morning Lynas advised that the Review Committee report in respect of Lynas Malaysia was posted online last night.

According to the release, the report found that Lynas Malaysia’s operations are low risk and compliant with applicable laws.

This is consistent with the company’s ‘Zero Harm’ philosophy and the findings of all seven previous reviews in Malaysia which comprise two IAEA reports, a Parliamentary Select Committee, and four court challenges.

So why is the Lynas share price crashing lower?

It wasn’t all good news unfortunately. Authorities have told Lynas that it must remove the radioactive waste that accumulated as a result of its activities over the past six years if it wants to continue to operate in the country.

According to Aljazeera, the Ministry of Energy, Science, Technology, Environment and Climate Change stated that “management of the waste residue from the Lynas Advanced Materials Plant (LAMP) should be given priority to ensure the wellbeing of the community and the environment.”

This residue, of which some is radioactive, has been building up at an open landfill at the Lynas site near the city of Kuantan since the processing plant started operations in 2012 according to the report.

As such the “Ministry is concerned with the increasing risk of arising from the continued accumulation of residue without a viable solution to manage its accumulation in the near-term.”

The company was disappointed with this decision, stating that: “Lynas is one of a number of industries in Malaysia with feedstock that produces residues with low level radioactivity. Malaysia has strict regulations in place for residue management and there should not be one rule for other industries and one rule for Lynas.”

Before adding that it would “consider all options available to us to achieve an appropriate outcome prior to 2 September 2019, including legal options.”

Should you buy the dip?

I would suggest investors stay well clear of Lynas as I suspect things could get worse before they get better for the company.

Instead, I think diversified miners such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) would be better options.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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