Jack Lifton talks with Neo Performance’s Constantine Karayannopoulos on China’s rare earths recovery

The Technology Metals Show host Jack Lifton talks with Constantine Karayannopoulos, President, CEO & Director of Neo Performance Materials Inc. (TSX: NEO) about the recovery of the Chinese rare earths industry. “The Chinese rare earths industry is recovering but so is the rare earths industry everywhere,” Constantine said in an interview. “It looks like the worst is over in China and the rest of the world is showing spurts of demand in specific markets, even in automotive.”

Jack and Constantine went on to discuss neodymium and praseodymium (NdPr) prices, the separated praseodymium market, and how the current market situation is affecting the prices for neodymium and praseodymium. In the interview Constantine also provided an update on Neo’s magnetic materials business.

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The Rare Earths War

Technology Metals Show host Tracy Weslosky moderates a timely discussion on how China poses a serious threat to the rare earths supply chain security of the United States, talking to international rare earths expert Jack Lifton and the Editor of “The Rare Metals War” Guillaume Pitron. Guillaume observed that Donald Trump as the President has been tackling the rare earths supply chain issue like no one ever done in this role. He added, “If he is re-elected, I believe, that is going to impact in a good way the US production of rare earth minerals and rare earth metals.”

Jack agreed with Guillaume and added, “Trump is the first president to refocus on globalization, and he is trying to de-globalize critical materials for the security of the United States.” Highlighting the seriousness of the rare earths supply chain problem, Jack said that Shin-Etsu and Hitachi, two large Japanese companies that supply rare earth magnets to the US military, have most of their production in China.

Jack also revealed that China recently announced that they would cut off Northrop Grumman, an American defense technology company, from all Chinese rare earth materials. “What Americans don’t seem to be paying attention to,” Jack continued, “is Grumman is the producer of the F-35 fighter plane, the greatest air superiority weapon in history. Grumman needs those rare earths to build those planes. This is going to bring real pressure on the defense department.”

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Neo Performance Materials manufactures high performance materials including very valuable rare earth magnetic powders

High performance materials, especially those involving rare earths magnet powders, are about to experience a huge demand as several massive macro trends develop this decade. Two of the biggest trends will be electric vehicles (EVs) and renewable energy (notably solar and wind). An important component for the best electric motors is powerful rare earth magnets.

Did you know?

  • By 2030, global demand for the two main rare earth metals (neodymium and dysprosium) used in wind turbines and electric vehicles is forecast to grow by 2.1x (that’s over 100% growth).
  • In a 100% EV world the demand for rare earths is forecast to grow by 655%.

Whilst China dominates rare earths processing and end products, there is one ‘Western’ company that is globally diversified and not fully dependent upon China.

Neo Performance Materials Inc. (TSX: NEO) manufactures the building blocks of everyday products and emerging technologies, including very valuable rare earth magnetic powders. The Company is headquartered in Canada but has operations in China, U.S., Germany, U.K., Canada, Thailand, South Korea, Singapore, and Estonia. Neo has over 1,800 staff. Neo is positioned to benefit from key macro trends including vehicle electrification, industrial automation, consumer electronics, energy efficient lighting, air and water pollution control, and greater use of superalloys.

Macro trends that drive demand for Neo’s advanced industrial materials

Source: Company investor presentation

Neo’s materials deliver a range of powerful properties to the products in which they are used, including magnetic, catalytic, luminescent, electrochemical, thermal stability, and superconductive.

Neo’s three main operational segments (with revenue % in brackets) are:

  • Magnequench (42%) – Production of magnetic powders used in bonded and hot deformed fully dense magnets.
  • Chemicals and Oxides (35%) – Distributes a broad range of light and heavy rare earth functional materials.
  • Rare Metals (23%) – Sources, produces, reclaims, refines and markets high value metals and their compounds, such as tantalum, niobium, hafnium, rhenium, gallium and indium.

Neo has a balanced and well-diversified customer base that includes large industrial, consumer electronics and chemical processing companies. A significant portion of revenue contribution is from customers who have been with Neo for 10+ years. As western companies look to diversify their supply chains away from China Neo stands to be a potential winner.

Neo Performance Materials has a diversified and long standing customer base

Source: Company investor presentation

Neo is a profitable, dividend-paying company with a strong balance sheet and robust cash-flow generation. As you can see in the chart below revenue was impacted negatively in 2019 and so far in 2020 due to the global slowdown from the trade war and COVID-19 pandemic. Naturally the stock price was also impacted; however this is the opportunity for investors.

The current market cap is C$326 million. 2021 and 2022 revenues and margins are forecast to improve on 2020. 2021 forecast PE looks attractive at 14.0 and 2022 is 12.8. Analyst’s consensus is an ‘outperform’ with a price target of C$10.42, representing ~20% upside. Risks revolve around the length of the current global slowdown, demand for Neo’s specialty products, and Chinese competition.

Neo Performance Materials revenue breakdown

Source: Company investor presentation

Closing remarks

Neo Performance Materials offers investors a safe jurisdiction and exposure to some of the biggest macro trends ahead this decade.

The EV boom is set to take off this decade and so is renewable energy which includes wind turbines and numerous energy efficient products, as well as superalloy and other high performance materials. Added to this there will be a surge in demand for auto catalysts to reduce air pollution. Neo supplies the specialty materials for all these areas.

Investors can consider buying Neo during the current market lull knowing that once the global demand for Neo’s materials picks up, the Company will also pick up. Neo Performance Materials is somewhat under the investment radar, but this could well change soon once word gets out and revenues start to turn higher again.




The EV sector sizzles, will rare earths be next? Spotlight on Appia Energy…

The electric vehicle (EV) sector has been one of the hottest sectors the past 3 months as investors chase everything ‘electric’. For example, Tesla (NASDAQ: TSLA) is up over 7 fold the past 14 months and is now the world’s most valuable car company. The past 3 months NIO is up 3 fold and Nikola is up 5 fold. The battery manufacturers have also surged.

So what’s next? Following the EV thematic one would say the EV metal miners should be next, and that includes the rare earths miners, as rare earths are a key component in the most powerful magnets used in EV motors. Last year Roskill reported that “Tesla extends EV range using ‘permanent magnets’ motors in Models S, X, and 3. This resulted in a 10% increase in the overall drivetrain efficiency of Tesla’s EVs, and hence an improvement in range. Roskill then expressed the following view:

“Permanent magnets that offer the best performance and optimisation potential in electric motors are rare earth neodymium-iron-boron (NdFeB) magnets. Over 90% of EV models currently use NdFeB-based permanent magnet motors as part of the EV drivetrain.”

Additionally, the US Senate will soon consider various Acts, including the ORE Act, that aim to secure US supply of critical elements such as rare earths. This has the potential to be another catalyst for the rare earths sector in the near future.

One of the most promising rare earths junior miners is Appia Energy Corp. (CSE: API | OTCQB: APAAF). Appia is currently exploring and developing uranium and rare earth deposits at its Alces Lake Property, in the Athabasca Basin area of northern Saskatchewan, Canada. They also have a promising uranium-rare earths project in Ontario, Canada.

Appia 100% own the Alces Lake property spread over 14,334 hectares. The Alces Lake property has monazite ore that is enriched in valuable critical rare earth elements, particularly Neodymium (Nd), Praseodymium (Pr), Dysprosium (Dy), and Terbium (Tb). These 4 elements account for between 23-25% of the TREO, or ~85% of the potential value at Alces Lake. Alces Lake hosts the 2nd highest average REE grade in the world.

At a 4 wt% Total Rare Earth Oxides (TREO) cutoff, Alces Lake average grade is exceptionally high at 16.65 wt% TREO. By comparison rare earths producer Lynas Corporation’s Mt Weld mine has an average grade ~10 wt% TREO, and is perhaps the most successful non-Chinese rare earth mine in the world today.

Appia Energy’s Alces Lake property has exceptionally high grade critical rare earths in Northern Saskatchewan, Canada

Source: Appia Energy company presentation

The high grade TREO at the Alces Lake Project hosted in monazite is an ideal potential western located source of the most valuable key rare earths needed in future industries such as EV motors and catalysts etc.

Rare earths key uses include powerful magnets (21% of demand and growing) used in EVs, electronics, and wind turbines etc

The Alces Lake Project’s rare earths are near surface and hence suitable for an open pit mine. Permitting should be smooth being in northern Saskatchewan Canada and the CapEx and OpEx should be reasonably low given the good grades and near surface resource. There is also an existing pilot plant and extraction facility in Saskatchewan the Project can use to start up a small scale production of rare earth oxides.

Appia Energy’s Alces Lake ticks all the right boxes

Appia Energy President and CEO, Tom Drivas, stated exclusively to InvestorIntel:

“Appia is currently exploring its Alces Lake project located in Saskatchewan Canada. Alces Lake has a number of surface zones with up to 85% monazite and can become one of the highest grade critical rare earth producer  in the world. Appia could supply the critical rare earth needed to the developing industry in the US and Canada.”

Appia recently announced that they have begun further exploration at the Alces Lake property. It is expected that between late July and early August Appia will commence -2,000 to 3,000 m of a drilling program to potentially expand the resource.

Closing remarks

Appia Energy trades on a market cap of just C$14 million, which is very low given their super high grades, valuable critical rare earths, and good location. The only possible explanation can be the relatively early stage of the project.

Rare earths expert Jack Lifton recently stated Appia Energy’s Alces Lake “is probably the best choice for development into a producing rare earth magnet materials’ mine in North America.”

Finally, Appia also offer investors exposure to several other projects in Canada that are highly prospective for both rare earths and uranium. Early investors in junior miners such as Appia have the potential for tremendous returns, especially if the Alces Lake project achieves funding and production. The recent surge in EV related companies, the US Senate considering rare earths Acts, and Appia’s potential for excellent near term news flow should all serve as strong catalysts for the stock in the year ahead.




A highly attractive ‘US based’ rare earths project awaiting funding

As discussed previously the ORE Act introduced by Senator Ted Cruz is the first step in recognizing the need for a domestic supply chain for critical materials, including rare earth elements (REE). Additionally the US Defense Department recently stated that it will seek $1.7 billion for rare earths purchases in the 2021 National Defense Authorization Act.

One of very few companies that has a quality US based rare earths deposit is Rare Element Resources Ltd. (OTCQB: REEMF). Their flagship project is the Bear Lodge Critical Rare Earth Project in northeastern Wyoming, USA. The Project has a projected 45-year mine life with an initial 9-year high-grade zone.

Bear Lodge – A world class resource in a top tier mining district in Wyoming, USA – Location map

In 2011, the US Geological Survey determined that the Bear Lodge Project contains one of the largest disseminated rare earth deposits in North America. Extensive geological work by the Company since 2004, including drilling, geophysical and geochemical sampling and assaying, has resulted in a Measured & Indicated Resource of 18 million tons grading at 3.05% Total Rare Earth Oxide (TREO) at a 1.5% cutoff grade. This includes 3.0 million tons of Measured and 15 million tons of Indicated resource. Total contained M&I Resource is estimated at over 450,000 metric tonnes of  TREO. It is worth noting that the cutoff grade is the starting point for some projects.

The site has easy access and within a short trucking distance there is an industrial park with a railway, utilities and large unused land. This is an advantage unlike a number of potential opportunities in the space which are located in remote locations with challenging logistics. The one challenge is that the deposit is in the Black Hills National Forest but with the current administration and the desire to establish a domestic source this should not be an impediment to permitting. As indicated on their website “the US Forest Service is preparing the Environmental Impact Statement (EIS) on the site, the draft of which was completed in January 2016 and is now suspended. The Company completed its applications for two key permits/licenses with a goal of receiving them at the same time as the final record of decision, the decision document for the EIS, which is currently on hold until markets support resumption of the process.”

The project’s most valuable end-products are Neodymium and Praseodymium (Nd/Pr) oxide which would account for over 80% of total potential revenues. It has some Terbium and Dysprosium (Tb/Dy) (approx. 0.5%) which with Nd/Pr would produce 95% of the project’s potential revenues.

In February, 2020, President and CEO of Rare Element Resources, Randall J. Scott, stated:

“We are very encouraged by the pilot plant results using our proprietary technology to produce a thorium-free Nd/Pr oxide. This product is key to unlocking the supply chain for rare earth magnet production in the U.S. Our ability to produce this product is timely given the current interest and associated funding initiatives of U.S. governmental agencies. The Company recognizes the critical nature of the products produced from the Bear Lodge pilot plant and we will continue to work closely with those who can enhance our trajectory to full production.”

The October 2014 PFS resulted in a post-tax NPV10% of US$330 million and a post-tax IRR of 29%. Even better was that the upfront CapEx came in at a very low US$290 million with only a 2.9 year payback period. All very impressive numbers for a 45 year life project. The Company sees potential for further cost reductions helped by their proprietary technology, additional by-products. If they choose to take a modular approach to development then this could cut PFS initial capital costs by 50-60%.

The Company also stated:

“The attractive location is a key factor in the Project’s low capital costs. Its proximity to a major interstate highway and a transcontinental rail line, as well as the availability of low-cost power, natural gas and water, means infra-structure development costs will be low. Additionally, local communities will be an excellent source of skilled personnel as residents of the area are experienced in natural resource development and operations.”

Rare Element Resources has developed a proprietary RE recovery/processing technology. The technology has delivered a 99.999% pure, thorium-free TREO powder that has then been separated into heavy and light rare earth fractions in a single step. Optimization work continues with a focus on reducing costs and further separating the fractions into products attractive to potential end-users. This work was done with Umwelt-und Ingenieurtechnik GmbH Dresden, Germany (“UIT”), an affiliate of Synchron. Synchron, is a division of General Atomics, a leading US contractor to the defense department. Synchron owns 49% of Rare Element Resources after exercising its option to purchase company shares in October last year

Construction of the Bear Lodge Project is expected to take 12-16 months after receipt of the necessary permits (EIS on hold awaiting financing), completion of a positive Feasibility Study, and securing project financing.

Closing remarks

Rare Element Resources has a highly attractive ‘US based’ rare earths project, with excellent economics, including a low upfront CapEx of $290 million. All that is needed is some funding. Given the recent new high priority towards rare earths, and particularly US rare earths deposits, one would think that Rare Elements Resources’ fairly advanced stage Bear Lodge Project would stand an excellent chance of achieving funding. It is certainly in the national interest.

The current market cap of Rare Elements Resources is just US$84 million. Analysts see plenty of upside ahead with a price target of $2.90 which compares favorably to the current price of $0.812/share.




As Chinese rare earths’ stock prices rally, pressure rises for the rest of the world…

Rising US-China tension has resulted in some rare earths’ stock prices rising sharply, particularly those in China. Given the recent US moves to introduce critical materials legislation it seems likely that the non-Chinese rare earth stocks will also rally strongly this year, particularly if the new bills and financial support are passed.

Let’s start with a recap of the recent US support highlights for rare earths:

The ORE Act focuses on six critical materials – Rare earths, scandium, lithium, cobalt, graphite, and manganese. The Critical Mineral Exploration and Innovation Act directs the U.S.G.S. to complete updated resource assessments for each critical mineral. It has been reported that there will be a focus on rare earths and other so-called strategic minerals.

Then just last week rare earths expert and Technology Metals Show host Jack Lifton stated exclusively to InvestorIntel: “The US Defense Department has announced last week that it will seek $1.7 billion for rare earths purchases in the 2021 National Defense Authorization Act that means the budget for fiscal 2021. In addition they will ask for another $300 million (a total of $2 billion), for rare earths for specialized weapons which they name as hypersonic missiles…”

Given all of the above proposed support to the rare earths sector, it is abundantly clear that the US is now finally moving rapidly to secure critical rare earths supply, particularly from US deposits, where possible. Current rare earths producers and listed rare earths stocks stand to be beneficiaries. Especially if they have US rare earths projects, but quite likely any non-Chinese rare earth juniors that can achieve funding and production should find very strong western demand for their products. Most of the western world is now looking to diversify their supply chains especially after the trade war and COVID-19 problems of the past 2 years.

Some rare earth miners with US projects include:

  • MP Materials (private)
  • Rare Element Resources Ltd. (OTCQB: REEMF)
  • Texas Mineral Resources Corp. (OTCQB: TMRC)
  • Ucore Rare Metals Inc. (TSXV: UCU | OTCQX: UURAF)

Some miners with US rare earth processing potential include:

  • Energy Fuels Inc. (NYSE: UUUU | TSX: EFR) recently stated their White Mesa Mill in the USA could be used in future for rare earths processing.
  • Lynas Corporation (ASX: LYC) has received US support for a planned US rare earths processing facility.
  • Peak Resources (ASX: PEK) plan to have a US rare earths processing facility.

Some rare earth miners with Canadian projects include:

Some rare earth miners with Australian projects include:

Rare earths are vital ingredients for modern technology

Rare-earths-are-vital-ingredients-for-modern-technology

Closing remarks

The massive recent news of two new rare earth/critical materials related Acts and a proposed “US$2 billion towards rare earths in 2021”, appears to have been somewhat missed by the market. The Chinese rare earths stocks have already bounced leaving the potential rest of the world rare earth miners to play catch up.

News flow in future months should continue to be extremely promising for the rare earths sector following on from the tremendous news from the last few weeks.

Investors should not wait too long as any further increased US-China tensions, threats of China supply loss, or passing of rare earths related Bills, will likely send non-Chinese rare earth miners stock prices higher.




Tom Drivas on the coronavirus and Appia’s commitment to a North American rare earths supply

“China supplies 85% of the rare earths to the world. The world is nervous not only because China has control on supply but also, let’s take coronavirus as an example, if work stops in China then what happens to the supply.” States Tom Drivas, CEO, President and Director of Appia Energy Corp. (CSE: API | OTCQB: APAAF), in an interview with InvestorIntel’s Peter Clausi at PDAC 2020.

Tom went on to say that the US, Canada, Australia, and other countries want to see some supply outside of China but there are only a few projects that can compete with the Chinese. Tom also spoke on Appia’s Alces Lake property which has uranium and rare earths. Tom said it is one of the best projects in North America in terms of high grade critical rare earths. The company is drilling at the property and has got some zones right on the surface with grades upto 49% rare earths.

To access the complete interview, click here

Disclaimer: Appia Energy Corp. is an advertorial member of InvestorIntel Corp.