NOPMF Is A Producer Of Magnet Powders & Permanent Magnets From Rare Earths

This article first appeared in Trend Investing on September 22, 2022; but has been updated for this article.

Neo Performance Materials [TSX:NEO] (OTCPK:NOPMF) (“Neo”) is a Canadian headquartered company that owns the only commercial rare earth separations and rare metal processing plant in Europe, at its Estonia factory.

Neo processes various critical metals with a focus on mixed rare earth concentrates to produce rare earth metal powders. Neo’s Magnequench division produces neodymium-iron-boron (NdFeB) magnetic materials and magnets used in many EVs and wind turbines, where the most powerful and lightweight electric motors are needed.

Neo currently produces magnets from its China operations (the Tianjin facility produces both magnetic powders and magnets) but plan to also do this from its Estonia Europe facility in the future. In August 2022 Neo stated:

“…..the Company’s larger growth strategies, which include expansion of its rare earth separations operations in Estonia and the possible construction of a new factory in Estonia to manufacture sintered neodymium-iron-boron magnets.

Neo Performance Materials 5 year stock price chart – Price = CAD 9.79

Neo’s business

Neo operates globally with sales and production across 10 countries, being Japan, China, Thailand, Estonia, Singapore, Germany, United Kingdom, Canada, United States, and South Korea.

Neo operates primarily as a processor of critical materials with a focus on rare earths processing and making magnet materials. The business is quite diversified as you can read below.

A summary of Neo’s business and customers (source)

Neo’s business has 3 key divisions:

Magnequench (47% of revenue) – “A global leader in bonded neodymium-iron-boron (NdFeB) magnetic powders, magnets, and their applications. Our powders and magnets are used to provide high performance magnetics for automotive, factory automation, high-efficiency motors, residential appliances, and many other industries.”
Chemicals & oxides (37% of revenue) – “Manufacture a wide range of advanced materials for use in environmental catalysts for vehicle emissions control, petroleum refining and other chemical catalysts, hybrid and electric vehicles, water purification, and a number of other applications.” Currently undergoing some relocation plans for the China operation.
Rare Metals (17% of revenue) – “Produces, reclaims, refines and markets high value niche metals and their compounds. These include tantalum, niobium, hafnium, rhenium, gallium and indium.”

Note: Bold emphasis by the author.

(source)

Neo states:

Neo is the only company in the world that operates dual supply chains inside and outside of China for REE separation and REE advanced materials. Neo owns the only operating commercial rare earth separation and rare metals facility in Europe.

Location map of Neo’s global operations (source)

Breakdown of revenue by segment and geography (as quoted in the Q2, 2022 investor presentation)

Neo plans to build up a Western rare earths supply chain from mine to magnet powder/magnet

Neo has recently been forming agreements and doing acquisitions in order to build a secure Western end to end supply chain for their rare earth products.

Energy Fuels rare earths carbonate supply deal

In rare earths Neo has an agreement with Energy Fuels (UUUU) to supply them with rare earths concentrate from the USA, which Neo processes further into rare earth oxide metal powders in Estonia Europe.

July 2021 – Energy Fuels and Neo Performance Materials Announce Contract Signing and Launch of Commercial Shipments of Rare Earth Product to Europe in Emerging U.S.-Based Rare Earth Supply Chain

Energy Fuels & Neo have developed a Western rare earths concentrate to processed rare earths products supply chain

Potential future Hastings Technology supply deal (Wyloo Metals backs Hastings with A$150m to fund the deal)

Announced in August, 2022, Australian junior rare earths miner, Hastings Technology Metals [ASX:HAS] (HSRMF), proposed to buy a 22.1% equity stake in Neo Performance Materials, funded by a A$150m investment (at a price of C$15.00 per Neo share). The acquisition is intended to be funded by a A$150 million cornerstone investment in Hastings by Wyloo Metals, through the issuance of secured, redeemable, exchangeable notes. Wyloo Metals is owned by Australian billionaire Andrew Forrest and family.

Hastings stated regarding their investment: “provide the opportunity for Hastings to participate downstream via an end-to end mine to magnet solution”. It looks that if Hastings Technology makes it to production, its preferred processing route would be via Neo.

Agreement to acquire strategic shareholding in Neo Performance Materials and cornerstone investment in Hastings by Wyloo Metals

Hasting Technology Metals news announcement August 26, 2022 (source)

Australian Billionaire Andrew Forrest’s Wyloo Metals Beats BHP In Bidding War For Canada’s Noront

Potential Greenland source of NdPr rare earths

On September 22, 2022 Neo announced:

Hudson Resources and Neo Performance Materials sign agreement on the Sarfartoq Rare Earth Element Project In Greenland…..The License covers the large Sarfartoq carbonatite complex that hosts Hudson’s ST1 REE project and the Nukittooq Niobium-Tantalum project. The REEs on the Property have a high ratio of neodymium and praseodymium at 25%-40% of Total Rare Earth Oxides. Hudson completed a Preliminary Economic Assessment on the ST1 project in November 2011 (see NR2011-15) that outlined a National Instrument 43-101 compliant resource containing 27 million kilograms of neodymium oxide and 8 million kilograms of praseodymium oxide.

Neo plans to explore and develop the Sarfartoq Project to further diversify its global sourcing of rare earth ore and to expand the rare earth supply chains that feed Neo’s rare earth separation facility in Estonia.

Note: Mining from Greenland has had some permitting problems as Greenland Minerals discovered recently, so would still be considered as high risk.

Neo's Greenland potential source of NdPr — Neo Q2, 2022 company presentation

Valuation

Neo’s current market cap is C$442m. Neo recently raised C$67.6m in cash at C$15.00 per share. Market Screener shows 2022 estimated net debt of zero.

Valuation is attractive on a 2022 PE of 4.6 and a dividend yield of 4.22%. 2023 PE is forecast at 7.51. 2022 net profit margin is forecast at 10.28%.

Market Screener shows a US$17.01 consensus price target for 138% potential upside.

Neo’s financials and forecast financials plus PE chart (source)

Management and top shareholders

Neo is led by President and CEO Constantine Karayannopoulos, who has a degree in Chemical Engineering. He was previously the Director, President, and CEO of Neo Material Technologies from 2005 until it was acquired in June 2012 for US$1.3b. He also served as non-executive Chairman of the Board of Neo Lithium Corp. which was taken over by China’s Zijin Mining Group Co Ltd for C$918m (US$737m) in 2021.

You can read more details on the board and management here.

Neo management and board (source)

No insiders shown in the list of top ten shareholders

Upcoming Catalysts

Europe may soon announce a Critical Materials Act with rules to support an EU supply chain, similar to the U.S Inflation Reduction Act. Assuming it will encourage Europe rare earths processing and magnet manufacturing, this would be a potential tailwind for Neo, as the Western leader in this field, and with a European facility already.
Any company announcements to expand existing production and/or begin funding and construction of a new magnet manufacturing facility in Estonia.
Quarterly financial results.

You can read the latest company news here.

Risks

A global slowdown may reduce demand for Neo’s products. In particular a slowdown in EV or wind turbine sales.
Company risks (management, debt, liquidity and currency risks). Fierce competition on pricing from Chinese competitors who may be subsidized by the PRC. As a Western supply chain starts to demand and/or require more local supply Neo will be ideally placed to benefit. China dominates the production and processing of rare earth with ~80% global market share.
Supply chain risks – Sourcing NdPr and/or other materials used in their products.
Disruptions to Neo’s production facilities. COVID-19 lockdowns in China etc.
Rare earths processing/production risk. Rare earths processing is not environmentally friendly. Environmental risk.
Sovereign risk – Neo’s facilities are spread globally with key facilities in Estonia, Thailand & China, so moderate country risk.
Stock market risks – Dilution, lack of liquidity (best to buy on local exchange – Canada), market sentiment.

Conclusion

Neo is in a very rare position as a Western processor of rare earth oxides (particularly NdPr) as well as a producer of magnetic powders, NdFeB permanent magnets (from China facility), and other critical/high end materials. Neo is working to expand its production capabilities (plans a future expansion in Estonia to include rare earth magnets) and to build up its supply chain of raw materials (especially rare earths).

Advanced stage rare earths junior Hastings Technology recently acquired a 22.1% equity stake in Neo at C$15.00 per share. What’s even more interesting is that the A$150m investment was backed by Wyloo Metals, a company owned by Australian billionaire Andrew Forrest and family.

Valuation is attractive on a 2022 PE of 4.6 and a dividend yield of 4.22%. Note 2023 PE is 7.51.

Risks revolve around sourcing rare earth materials in a supply chain dominated by China, fierce Chinese competition in the rare earths processing sector, and moderate country risks due to Neo’s operations in many countries (China, Estonia, Thailand etc). Low to zero insider share holding is also a reason for some caution. Please read the risks section.

We rate Neo Performance Materials as a buy (ideally in stages to lower risk), best suited for a 5 year+ time frame.

As usual all comments are welcome.