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November 08 2012, 5:47PM

Shares in Lynas Corporation surged in late trade after a Malaysian court paved the way for the company to begin operating a controversial rare earths processing plant.

The Kuantan High Court ruled against Malaysian activists who were trying to stop Lynas from processing rare earths on the country's east coast.

Lynas was granted a temporary operating licence for its advanced materials plant in September, but local activists sought a judicial review of that approval.

Environmental activists and local residents argue the plant will produce radioactive pollution that will seep into ground and water.

But on Thursday the Kuantan High Court denied an application by parties associated with the Save Malaysia Stop Lynas group for an injunction against Lynas' temporary operating licence.

"There is no injunction or stay preventing Lynas carrying out its operations at its Malaysian plant," Lynas said in a statement.

The decision has not deterred activists who are still seeking a judicial review of the decision.

Lynas shares closed 8.5 cents, or 11.8 per cent, higher at 80.5 cents, below the 89.5 cent level reached after the temporary operating licence was granted.

A judicial review application is expected in a few months time.

In its statement Lynas said it intends to defend the process undertaken by the Malaysian minister of science, technology and innovation.

The company's plant would be the biggest rare earth operation outside China and is considered important to breaking that country's current 95 per cent monopoly on global supply.

Lynas insists that any radioactive waste would not be harmful to humans, having chosen the site because it was cheaper and it had thought easier to build politically than in Australia.

Mitsubishi is still cleaning up the site of a rare earth processing plant it closed in Malaysia in 1992, which some residents say has caused health problems including birth defects and cancer.

Lynas' Mt Weld mine in Western Australia is considered the world's richest deposit of rare earth minerals, which have a range of hi-tech uses such as in hybrid cars, mobile phones and computers.

By Kim Christian