(Corrects paragraph 7 to show Argo Investments is a major shareholder, not top shareholder)

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Lynas appeals Malaysia decision or faces plant wind down

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Shares fall as much as 6%

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First half results modestly beat expectations

MELBOURNE, Feb 27 (Reuters) - Lynas Rare Earths Ltd said it was focused on getting its new plant in Australia up and running amid concerns its Malaysian facility would have to be partly wound down, as it posted a 4% drop in first-half profit on Monday.

The world's biggest producer of rare earths metals outside China faces the prospect it will have to stop cracking and leaching in Malaysia after regulators said it must halt importing and processing rare earths concentrate from July.

Lynas has appealed that decision, while at the same time is racing to complete construction of a plant in Kalgoorlie in Western Australia to handle cracking and leaching, essential to producing neodymium and praseodymium (NdPr) used in magnets in sectors from electrified transport to defence.

As to whether Lynas could have the plant ready in time to avoid a disruption to supply of those critical rare earths, Chief Executive Officer Amanda Lacaze said past performance was the best indicator of future success.

"We have proven ourselves to be competent at bringing on new facilities ... but I won't tell you a percentage confidence other than to say I think we have reasonable track record."

Shares of the rare-earths producer fell as much as 6% before paring losses to trade down 4.7% at A$8.10 by 0332 GMT.

"There is still a lot of uncertainty," said Andy Forster, portfolio manager of major shareholder Argo Investments.

"Lynas seemed to indicate planning for a variety of outcomes to ensure it can continue to supply its customers," he added.

The plant in Kalgoorlie was part of a growth project but may now be needed to replace its Malaysian facility, if Lynas is unsuccessful in its appeal.

Lynas has suggested that its Kalgoorlie plant will be taking feed in the June quarter, ahead of previous expectations for a July ramp up, Barrenjoey analysts said.

"We and the market have been fearful that there is a delay to Kalgoorlie being complete and therefore a potential production gap," Barrenjoey said.

"Now it's still possible to have a gap, but will come down to how quickly Kalgoorlie ramps up, and ships product to Malaysia for finishing. Any gap is looking more likely to be modest."

Lynas has found a site for its heavy rare earths processing facility in the United States and is working on obtaining approvals.

It has offered and would welcome feed from emerging rare earth projects for processing at its Malaysian and U.S. facilities, Lacaze said, to help meet a looming shortage.

"Are there enough projects? Yes. Are there enough projects that have sufficient chance of success? Maybe a little more problematic," she said.

"It's not for the faint-hearted and it's not like this is readily accessible technology."

For the six months ended Dec. 31, Lynas reported net profit after tax of A$150.1 million ($100.9 million), down from A$156.9 million a year ago, hit by an 8.8% drop in sales volume and a 32% rise in cost of sales.

However the result was slightly better than a Visible Alpha consensus estimate of A$146 million, according to Goldman Sachs.

($1 = 1.4872 Australian dollars) (Reporting by Sameer Manekar and Upasana Singh in Bengaluru; Editing by Chris Reese, Jonathan Oatis, Sam Holmes and Sonali Paul)