The Albanese Government of Australia has recently undertaken a notable revision of its critical minerals policies, underscoring the nation’s focus on energy, job creation, and national defense. These revisions include updating the Critical Minerals List and introducing a new Strategic Materials List, an integral part of a larger strategy to establish Strategic Critical Minerals Hubs across the country.

Significant changes to the Critical Minerals List have been made, notably adding fluorine, molybdenum, arsenic, selenium, and tellurium, while removing helium. This update brings Australia’s list into closer alignment with those of its international strategic partners. These minerals play a vital role in the energy transition and are heavily utilized in the defense and technology sectors.

Alastair Neill, Director of the Critical Minerals Institute (CMI), offered an expert perspective on these additions. He remarked, “It was interesting to see some of the additions. Arsenic is involved pretty well in Europe and the US, but again China, has 40% of the world’s production, I think the next largest is Peru. So there is lots of arsenic in North America. But just because of the environmental hoops that you have to go through to deal with that I think has prevented sort of domestic production. They also added molybdenum, which is an interesting choice, and tellurium, and selenium, which are very small markets by themselves.” Neill’s insights highlight the strategic considerations and complexities in the global supply chain of these minerals.

Additionally, the new Strategic Materials List complements the Critical Minerals List by identifying essential commodities for the energy transition that are not at risk of supply chain disruptions. This list includes copper, nickel, aluminum, phosphorous, tin, and zinc, notable for their established industries and stable supply chains.

A key component of this initiative is the feasibility study for Strategic Critical Minerals Hubs, aimed at identifying potential locations for critical minerals infrastructure precincts, especially for commodities that might face supply chain disruptions. This study is informed by the Government’s Critical Minerals Strategy and input from industry and state and territory resources ministers.

Minister for Resources and Northern Australia, Madeleine King, has emphasized that these changes are the culmination of extensive consultations with industry, the public, and state and territory governments. The updates are poised to enhance Australia’s stature as a significant exporter of clean energy materials, reflecting the critical role of these minerals in the greening of Australia’s economy and its national defense.

The Critical Minerals List and the Strategic Materials List will be updated regularly to reflect changing economic and geostrategic dynamics. The inclusion of minerals like copper, nickel, aluminum, phosphorous, tin, and zinc on the Strategic Materials List highlights their economic and strategic importance, especially in light of the global energy transition.

The Australian Government maintains both the Critical Minerals List and the Strategic Materials List to identify minerals crucial for the nation’s modern technologies, economy, and national security. These lists are subject to review at least every three years and may be adjusted in response to global strategic, technological, economic, and policy changes. The Critical Minerals List comprises minerals essential for modern technologies and national security, while the Strategic Materials List includes those important for the global transition to net zero and other strategic applications, but with currently stable supply chains. The government’s ongoing support for the extraction and processing of these minerals is a critical aspect of monitoring their market developments.

Australian Strategic Materials Ltd. (ASX: ASM) management team closed out 2021 with a measurable project and corporate successes. Most significantly, in December 2021, the company updated the 2018 Dubbo Project Optimization Study. The updated study released in early December 2021, supports a 20-year mine life based on existing ore reserves, with Measured and Inferred mineral resources, (which have the potential to extend the mine life) being excluded for this study. The economics are robust – pre-tax NPV of AUD$2.36 billion and a pre-tax IRR of 23.5%. This is 6% higher than the previous study done in 2018 and is measurably significant.

The Dubbo Project is based on the Toongi deposit in southeastern Australia (New South Wales), which contains rare earths, zirconium, niobium and hafnium and reserves that support a project life of 20 years and resources that may support a much longer mine life. Importantly, on July 21, 2021, the company announced a new 20% partner for Dubbo development, the receipt of US$250 million from a consortium of South Korean investors, and a buyer for product from its Korean Metals plant in South Korea, which saw partial commissioning for the neodymium metal production furnace system last year with additional commissioning to follow this year and full scale production expected in the second half of 2022.

The Dubbo Project is ready for construction with all major state and federal approvals and licenses in place, along with a proven process flow sheet and solid project economics. Management has appointed Australian and New Zealand Banking Group Limited (ANZ) as debt financial advisor to assist in engaging with Australian and South Korean export finance agencies as part of the financing of the Dubbo Project.

The company has a “mines to metal” strategy and has executed on that in the past year. The company is nearing completion of the Korean Metals Plant (KMP) in South Korea and, as previously announced, as part of the framework agreement with the investors, a new and separate consortium will be established to develop a permanent magnet manufacturing business in South Korea (MagnetCo Fund).

Not to be outdone by the calendar, in mid-December the company announced the signing of a Joint Statement of Cooperation. ASM and KOMIR, the Korea Mine Rehabilitation and Mineral Resources Corp., have agreed to work together to expand the use of rare earths and critical metals in Korea and develop import opportunities that will secure the supply of these metals for Korean industry. While this is a lot of press-release-speak, it means that ASM has a deal to supply an alternative, secure and sustainable supply of critical metals to South Korea. ASM will commence production of critical metals at ASM’s Korean Metals Plant in 2022.

In Summary:

• Dubbo Mine – fully permitted, updated optimization study, now funded and partnered. Have a feedstock purchaser in KMP for rare earths.
• Metallization plant – under construction in South Korea. Partially commissioned in 2021 and expected to be fully operational this year.
• Magnet producer – to be constructed, partnership established.

Or as keen observers of the Australian Open tennis tournament would observe “Game, Set and Match”.

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.