The company mines rare earths at Mount Weld in WA's northern Goldfields and ships them to Malaysia for processing.
Lynas would then be banned from importing materials containing naturally occurring radioactive material; the company still plans to use Malaysia for later stages of its processing.
City chief executive John Walker said the plant would be a "game changer" for Kalgoorlie and help diversify the local economy, which was reliant on gold mining.
"For a global company with a global product in rare earths, I think it's the start of something that will be really great for the town," Mr Walker said.
In a separate project, Lynas has secured a contract to design a rare earths processing facility in Texas that would supply the US Department of Defense.
"Scientifically and from a health perspective, low-level radioactive material such as thorium and uranium, which are found in Lynas's waste, are by no way safe," she said.
When contacted about these concerns, a Lynas spokesman said "these kinds of factually incorrect claims have been made by various activists in Malaysia" and have been "found to be without foundation by the scientific review panels".
A Lynas spokesman said the company was keen to ensure the Kalgoorlie community was kept informed and that the plant's by-product "will be stored in approved, purpose-built long-term storage facilities".
In the same shire, a private company recently completed an EPA-approved waste disposal facility, which also accepts low-level naturally occurring radioactive materials
Mr Walker from the City of Kalgoorlie-Boulder said the Lynas waste could go to a different facility and the details had not been finalised
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