December 01, 2022

Neo Performance and Hastings – Will Wonders Never Cease?

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The term “Holy Moley” is seldom, if ever, used by us but our powers of speech are severely hampered by trying to digest the implications of the latest deal in the rare earths space. Neo Performance Materials Inc. (TSX: NEO) has now succeeded in flooring us twice in two weeks.

First, there was its announcement that it was acquiring a rare earths elements (REE) mining project in Greenland and making all the right noises as if it was going to move that forward (and if anyone can, it would be them). And then we have the shock announcement that Hastings Technology Metals Ltd (ASX: HAS), the sometime REE developer in Australia, is to acquire a 22.1% strategic shareholding in Neo Performance Materials. We need not remind investors that Neo is not only a leading global rare earths processing and advanced permanent magnets producer, but it is THE leading global rare earths processing and advanced permanent magnets producer outside China, with a string of plants around the world and most particularly its Silmet plant in Estonia, which is a cornerstone of the monazite sands processing strategy of Energy Fuels Inc. (NYSE: UUUU | TSX: EFR).

The market cap of Neo, on the eve of this announcement, was CAD$605 million. The acquisition has been agreed at a price of CAD$15.00 per Neo share, representing a total consideration of CAD$135 million. Bargain basement, indeed, in our view.

According to the release, the acquisition is intended to be funded by an AUD$150 million strategic investment in Hastings by Wyloo Metals through the issuance of secured, redeemable, exchangeable notes.

Interestingly, the stake is not a de novo investment by Hastings but rather the purchase of a stake from an affiliate of Oaktree Capital Management. Those with long memories will recall that this stake dates back to the ancient history of when Molycorp went spectacularly bust just under ten years ago and Neo was reconstituted bigger and better out of the ruins. The stake being vended by Oaktree consists of 8,974,127 common shares in Neo, representing a 22.1% shareholding.

The proposed acquisition provides Hastings (and Wyloo) with a strategic stake in Neo and exposure to the global downstream processing of rare earth materials into magnets.

We have written about Hastings’ Yangibana deposit so long ago that we must fight through a veil of cobwebs to find what we wrote. The company claims that the project remains the key priority for Hastings, “with good progress being made on funding initiatives and other key milestones.” But they would say that, wouldn’t they?!

The acquisition of the Neo stake, and in particular the Wyloo investment, are subject to shareholder approval (50% voting threshold). All this begs the question as to whether Canada (or indirectly the US) will allow the crown-jewel (indeed the Queen on the REE chessboard) to pass into the hands of Wyloo Metals.

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16 responses

  1. Alastair Neill Avatar
    Alastair Neill

    A very interesting move by Hastings. Will be interesting how Neo blends the two announcements into a combined strategy. Also will they now look at heavy REE separation outside China?

  2. Jack Lifton Avatar
    Jack Lifton

    Christopher
    Here’s my “take” on this from my vantage point in the former “Motor City” just across the Detroit River from the future North American EV capital, Ontario, Canada:

    When Neo Performance Materials, earlier this week, announced an investment in a high-grade rare-earth deposit in Greenland many in the rare earth industry wondered aloud “Where is Neo going to get mine development expertise?” Now we get the answer: Hastings Technology Metals Ltd. of Australia has bought 22% of Neo for $120 million dollars. Neo now has a mining development and operations partner and $120 million to begin development of the Greenland property, upon the completion of which Neo would be the first Canadian based Non Chinese company totally vertically integrated in the production of rare earth permanent magnets, and, so far, the only non-Chinese company to do so, ever. It will get even better when Hastings goes into production of rare earths itself, and Neo cross pollinates its technologies into the Australian and Asian markets.

    Jack

    1. Alastair Neill Avatar
      Alastair Neill

      Jack,
      I am curious how you see Neo getting the $120M. I thought this would go to Oaktree for their shares. Or am I missing something?

    2. Marc LeVier Avatar
      Marc LeVier

      Jack, care to comment on the political situation in Greenland and the potential issues with permitting and the government position on mining? As we know, permitting in US is 8-12 years; Australia and Canada is more of a 2-4 year timeline. Where does Greenland fit?

      1. Jack Lifton Avatar
        Jack Lifton

        Marc
        The Greenlanders and the Danes are strong advocates of Green Energy. But even as such they are currently against mining, refining, or utilizing radioactive materials. I think that Neo is facing an uphill battle, and that any permit to mine and/or refine rare earth bearing radioactive minerals in Greenland will take many, many years to achieve, at best. But, Neo may have assurances that we are not yet aware of. Time, perhaps lots of it, will tell.
        Jack

      2. Jack Lifton Avatar
        Jack Lifton

        Alastair
        You are right. I mis-spoke, but in the mean time Neo raised 65 million by selling treasury stock and diluting the equity by 9% to do so. The game’s afoot as the famous detective use to say,
        Jack

        1. Christopher Ecclestone Avatar
          Christopher Ecclestone

          Constantine is clearly not taken this lying down on his sun recliner.. the gloves are off… Twiggy (a pseudonym shared with a diaphanous English model from the 60s) has not yet had the pleasure of the backbiting of the REE space. In any case, its Charles Lew who will bear the brunt… if he is up to the task.

        2. Lauri Karp Avatar
          Lauri Karp

          Nick, Estonia is less exposed to natural gas than other EU countries, heat comes from the renewable biomass. Lights are on, but electricity market prices swing wildly. You are correct asking right questions about supply-chain risks. Lets keep fingers crossed that alternative feeds come online soon. Combining multiple feeds is operational challenge, but available human capital is strong. Nd/Pr recycling is also great oppo and Estonia is still a very investor friendly country.

  3. Peter Avatar
    Peter

    This transaction only needs shareholder approval from the Hastings shareholders, to issue the equity notes. No approval needed from Canadian securities regulators. However, the federal govt may want to take a look to prevent that wonderful asset from moving to Australian hands. Not sure how it can block the sale of existing shares from one shareholder to a new one.

    1. Tracy Weslosky Avatar
      Tracy Weslosky

      I have sent several emails to Hastings this morning requesting a quote – and by way of this comment, requesting an interview. How about we offer to do a Critical Minerals Corner with someone from HASTINGS and you and Jack…

      – enjoyed your comment Jack, and well-done piece Christopher, thank you.

      1. Tracy Weslosky Avatar
        Tracy Weslosky

        Thank you for all of the gracious emails generated from this column. Yes, we do have contacts with management at Hastings, and an email invitation has been sent to requesting an interview with Investorintel.

    2. Mark Avatar
      Mark

      Hi Chris.
      Who is this mystery HAS funder? You can’t be serious. Even if you didn’t live in Australia and recognise the name Wyloo then google is a handy tip. If you don’t know the name Andrew Forrest then maybe google again…..

      1. Tracy Weslosky Avatar
        Tracy Weslosky

        Mark, Thank you for your note. Christopher’s comment was in reply to another comment, which was deleted by the source. He is well aware of WYLOO and for the benefit of others unfamiliar with WYLOO, this was pulled from Bloomberg for a quick intro to an investor that many refer to as ‘Twiggy’: “Wyloo Metals is a private company owned by Australian Billionaire Andrew Forrest. With a net worth of $19.9 billion, he is ranked 73rd on the Bloomberg Billionaires Index as on August 25, 2022. (Source: https://www.bloomberg.com/billionaires/)” – If you go to Wikipedia, they cite a much higher personal network (https://en.wikipedia.org/wiki/Andrew_Forrest). We have reached out to our network to see if he will do an interview with us. If you would like to add anything further, we thank you for visiting InvestorIntel.com. Every reader is respected. Tracy

    3. Tracy Weslosky Avatar
      Tracy Weslosky

      thank you – good note.

  4. Nick Pingitore Avatar
    Nick Pingitore

    How are they going to keep the lights on at the plant in Estonia with the current energy crisis in Europe? And I notice that Estonia has a not-so-friendly neighbor on its border.

    1. Gordon Bracegirdle Avatar
      Gordon Bracegirdle

      Sour grapes?

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