Neo Performance Materials enters mining with aim to control prices
More than half of the company’s revenue depends on the automotive sector
For most of the three decades that Neo Performance Materials Inc. has been around, the rare earth materials specialist “purposely” stayed away from the mining sector.
Its goal was to always remain a “specialty chemicals and materials producer.” And yet, a rising demand for rare earth magnets that play a key role in manufacturing electric vehicles (EVs) and the fluctuating prices of raw materials have forced the Toronto-based company to enter a deal to acquire a licence from Hudson Resources Inc. to explore a rare earth deposit in Greenland.
“This was inevitable … the only way we can control our costs is to own the resources where those materials originate,” the company’s chief executive Constantine Karayannopoulos said.
“We want to grow our business and make some big strategic bets in the EV space … this is what led us to conclude that we need to find a deposit … for the production of magnets for electric vehicles in Europe and eventually in North America.”
Rare earths are a group of 17 naturally occurring metallic elements often found together in the earth’s crust. The demand for them, specifically neodymium, praseodymium and smaller levels of dysprosium and terbium, has increased in recent years as they are needed to manufacture EVs and wind turbines.
Researcher Adamas Intelligence expects a major neodymium-praseodymium oxide shortage by 2035 and estimates the commodity will triple in value by then.
This was inevitable … the only way we can control our costs is to own the resources where those materials originate
Ryan Castilloux, the research group’s founder, in June said China, the world’s biggest producer of magnet rare earth oxides, could stop exporting the minerals within the next decade to meet its own demand.
Neo Performance is one of the few companies outside China that has an established infrastructure to develop rare earth products. With two factories in China and one in Estonia for the production of rare earth elements, analysts often describe Neo’s supply chain as unique.
More than half of the company’s revenue depends on the automotive sector. Karayannopoulos said the pressure from Europe’s auto sector to make magnets for EVs made the company decide to build a new magnet plant in Estonia, which could supply magnets for about five million EVs a year once complete.
However, Neo Performance needs more raw materials to reach that goal. Currently, it gets its supplies from Russia, China and, to some extent, the United States.
To tackle that issue, the company has entered a US$3.5-million deal with Hudson Resources to acquire the mining licence that covers the Sarfartoq carbonatite complex in southwest Greenland.
Located about 60 kilometres away from Greenland’s international airport, the deposit is expected to contain about 27 million kilograms of neodymium oxide and eight million kilograms of praseodymium oxide, according to a study conducted by Hudson Resources.
A preliminary economic assessment of the project conducted in 2011 expects the mine to have a 21-year life and a total capital cost of about $343 million. But Neo Performance hopes to drill some of the unexplored regions within the complex and boost the project’s mine life and its resource estimate.
“We were able to buy this asset from them for not a lot of money, which is appropriate because there’s still a lot of work to be done and a lot of money to be spent,” Karayannopoulos said. “It’s still early days.”
He believes Neo Performance will be able to build the mine on its own, but would not be surprised if it receives funding from the European Union. If the project goes according to plan, he expects the company will get enough raw materials for the next three decades.
More importantly, Karayannopoulos believes the project’s “high” score in terms of environment, social and corporate governance (ESG) is an advantage. For example, the uranium content in the deposit is lower than others and the project is adjacent to some of the “best hydroelectric potential” in Greenland, he said.
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“The inability to control our suppliers is a negative on the scores that we get from our customers in the sustainability audit,” he said. “Our customers, especially in Germany have made it clear to us, that they need to see their operators in the right ESG conditions.”
While the demand for rare earths has been on the rise, producers outside China are rare. There are a couple of junior mining companies that have reached the pilot stage, but they have not started commercial production.
Karayannopoulos said the world, other than China, has made the “classic mistake” of taking a “simplistic mining approach” to producing rare earths. Mining skills are necessary to get resources out of the ground, but it’s a completely different “science and technical field” to make rare earth end products.
With enough experience in transforming raw materials to rare earth products, he hopes Neo Performance’s “magnets-to-mines” strategy can make a difference in the long run.
Neo Performance shares were trading at $14.04 at 1:20 pm within a 52-week trading range of $10.48 and $22.85. The company has a market cap of 571.1 million.
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