August is usually a slow time for business and news as it is the end of the summer holiday season in the Northern hemisphere, but this August has been a particularly busy time for Neo Performance Materials Inc.‘s (TSX: NEO) management team, especially CEO Constantine Karayannopoulos.

Announcements have been coming fast and furious. Let’s start with the most surprising news first:

• Hastings Technology Metals acquires a 22.1% shareholding in Neo Performance Materials — August 26, 2022
  

On August 26th Hastings Technology Metals Ltd (ASX: HAS) announced it was acquiring a 22.1% shareholding in Neo Performance Materials by buying out most of the position of Oaktree Capital Management, L.P. (Oaktree) fund OPPS NPM SARL. Oaktree will sell 8,974,127 shares at C$15/share. Prior to this OPPS held 9,878,155 shares. The funding comes from Wyloo Metals, a private Australian metals company formed by Andrew “Twiggy” Forrest, whose worth is reported at US$17.5 billion. Wyloo will invest the money into Hastings who in turn will acquire the shares from the Oaktree subsidiary.

• Neo Performance Materials Announces $67.5 Million Bought Deal Treasury Offering of Common Shares — August 26, 2022

On the same day as the announcement of the share acquisition by Hastings, a bought deal was announced with Paradigm Capital being the lead underwriter. The deal was done at $15/share. At the time of writing, Neo Performance Materials was trading at $14.25. There are over 40 million shares outstanding so after this deal, there will be 45 million shares. According to the press release the funds will be used for “general corporate purposes including the expansion, maintenance of global assets and the pursuit of strategic growth opportunities around the globe.” Expansion of the operations in Estonia is likely one area for the usage of the funds.  Having visited the plant over a decade ago it is a Soviet era plant which runs nitric acid to separate the rare earths. Neo Performance Materials’ two plants in China use hydrochloric acid. The nitric route is high initial capex as every component is made from stainless steel but has lower opex than the Chinese approach. At a capacity of 3,000 TPY of rare earths oxides the Greenland deposit would produce 750 TPY of Nd/Pr or about 2,500 tonnes of magnets. A nominal size.

• Second quarter results with records for revenue, Operating income and adjusted EBITDA — August 12, 2022

This is due to the high prices for the four key magnetic elements, Neodymium, Praseodymium, Terbium and Dysprosium, which hit prices not seen in the past decade. Since then, Nd and Pr have dropped about 50%, Tb 20% and Dy 35%, which means it will be a challenge for Q3 results to match Q2 numbers.

• Neo Secures $75 Million Loan to Finance Expansion and Relocation Of Its Environmental Emissions Catalyst Business — August 17, 2022

This financing came from Export Development Canada (EDC). The credit facility matures in 5 years and is available in 3 tranches of $25 million. The funds will be used to relocate its rare earth plant in Zibo, Shandong province, China, to a nearby industrial park which will provide access to water treatment and waste/water recycling. This plant produces high value materials for automotive catalytic converters. The relocation is to expand capacity from 4,000 TPY REO to 5,000 TPY REO. Based on reported analysis for Baiyan Obo this expanded capacity will produce 370 tonnes of Nd/Pr oxide which would generate an additional 1,300 TPY of NdFeB magnets.

• Hudson Resources and Neo Performance Materials Sign Agreement on The Sarfartoq Rare Earth Element Project in Greenland — August 22, 2022

This is an interesting move by Neo as they only tried to go upstream into mining once before when they got involved in a tin mine in Brazil over a decade ago. The development of this project would provide a source for their plant in Estonia which gets most of its raw material from Russia presently with the balance from Energy Fuels Inc. (NYSE American: UUUU | TSX: EFR) in the USA. The deal is a non-refundable deposit of $250k. Once the Greenland government gives approval for transfer of the license to Neo or its special purpose entity, Neo will pay Hudson Resources an additional $3.25 million. There are two projects in the deal. One is an REE project in SW Greenland and a nearby Nb/Ta. Deposit. The Neo plant in Estonia also produces high purity Nb and Ta metal as well as rare earths so there is synergy in this deal.  The 2011 43-101 report on the REE project showed an indicated resource of 5.9 million tonnes at 1.8% rare earth oxide which translate to about 100,000 of rare earth oxides. It is an underground mine opportunity which will bring added cost to the mining process. Should Neo proceed with this acquisition it will need to develop a camp onsite and decide where to upgrade the ore prior to shipping a concentrate to Estonia – all challenges Canadian companies have dealt with for decades.

If Neo Performance Materials is an indicator for the rare earths sector, one can only wonder what’s next.

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.