This article first appeared in Trend Investing on September 22, 2022; but has been updated for this article.

Neo Performance Materials [TSX:NEO] (OTCPK:NOPMF) ("Neo") is a Canadian headquartered company that owns the only commercial rare earth separations and rare metal processing plant in Europe , at its Estonia factory.

Neo processes various critical metals with a focus on mixed rare earth concentrates to produce rare earth metal powders. Neo’s Magnequench division produces neodymium-iron-boron (NdFeB) magnetic materials and magnets used in many EVs and wind turbines, where the most powerful and lightweight electric motors are needed.

Neo currently produces magnets from its China operations (the Tianjin facility produces both magnetic powders and magnets) but plan to also do this from its Estonia Europe facility in the future. In August 2022 Neo stated:

".....the Company’s larger growth strategies, which include expansion of its rare earth separations operations in Estonia and the possible construction of a new factory in Estonia to manufacture sintered neodymium-iron-boron magnets.

Neo Performance Materials 5 year stock price chart - Price = CAD 9.79

Neo operates globally with sales and production across 10 countries, being Japan, China, Thailand, Estonia, Singapore, Germany, United Kingdom, Canada, United States, and South Korea.

Neo operates primarily as a processor of critical materials with a focus on rare earths processing and making magnet materials. The business is quite diversified as you can read below.

A summary of Neo's business and customers (source)

Neo's business has 3 key divisions:

Note: Bold emphasis by the author.

Neo is the only company in the world that operates dual supply chains inside and outside of China for REE separation and REE advanced materials. Neo owns the only operating commercial rare earth separation and rare metals facility in Europe.

Location map of Neo's global operations (source)

Breakdown of revenue by segment and geography (as quoted in the Q2, 2022 investor presentation)

Neo has recently been forming agreements and doing acquisitions in order to build a secure Western end to end supply chain for their rare earth products.

Energy Fuels rare earths carbonate supply deal

In rare earths Neo has an agreement with Energy Fuels (UUUU) to supply them with rare earths concentrate from the USA, which Neo processes further into rare earth oxide metal powders in Estonia Europe.

Energy Fuels & Neo have developed a Western rare earths concentrate to processed rare earths products supply chain

Potential future Hastings Technology supply deal (Wyloo Metals backs Hastings with A$150m to fund the deal)

Announced in August, 2022, Australian junior rare earths miner, Hastings Technology Metals [ASX:HAS] (HSRMF), proposed to buy a 22.1% equity stake in Neo Performance Materials, funded by a A$150m investment (at a price of C$15.00 per Neo share). The acquisition is intended to be funded by a A$150 million cornerstone investment in Hastings by Wyloo Metals, through the issuance of secured, redeemable, exchangeable notes. Wyloo Metals is owned by Australian billionaire Andrew Forrest and family.

Hastings stated regarding their investment: "provide the opportunity for Hastings to participate downstream via an end-to end mine to magnet solution". It looks that if Hastings Technology makes it to production, its preferred processing route would be via Neo.

Hasting Technology Metals news announcement August 26, 2022 (source)

Potential Greenland source of NdPr rare earths

Hudson Resources and Neo Performance Materials sign agreement on the Sarfartoq Rare Earth Element Project In Greenland.....The License covers the large Sarfartoq carbonatite complex that hosts Hudson’s ST1 REE project and the Nukittooq Niobium-Tantalum project. The REEs on the Property have a high ratio of neodymium and praseodymium at 25%-40% of Total Rare Earth Oxides. Hudson completed a Preliminary Economic Assessment on the ST1 project in November 2011 (see NR2011-15) that outlined a National Instrument 43-101 compliant resource containing 27 million kilograms of neodymium oxide and 8 million kilograms of praseodymium oxide.

Neo plans to explore and develop the Sarfartoq Project to further diversify its global sourcing of rare earth ore and to expand the rare earth supply chains that feed Neo’s rare earth separation facility in Estonia.

Note: Mining from Greenland has had some permitting problems as Greenland Minerals discovered recently, so would still be considered as high risk.

Neo's current market cap is C$442m. Neo recently raised C$67.6m in cash at C$15.00 per share. Market Screener shows 2022 estimated net debt of zero.

Valuation is attractive on a 2022 PE of 4.6 and a dividend yield of 4.22%. 2023 PE is forecast at 7.51. 2022 net profit margin is forecast at 10.28%.

Market Screener shows a US$17.01 consensus price target for 138% potential upside.

Neo's financials and forecast financials plus PE chart (source)

Neo is led by President and CEO Constantine Karayannopoulos, who has a degree in Chemical Engineering. He was previously the Director, President, and CEO of Neo Material Technologies from 2005 until it was acquired in June 2012 for US$1.3b. He also served as non-executive Chairman of the Board of Neo Lithium Corp. which was taken over by China's Zijin Mining Group Co Ltd for C$918m (US$737m) in 2021.

You can read more details on the board and management here.

Neo management and board (source)

No insiders shown in the list of top ten shareholders

You can read the latest company news here.

Investors can read Neo's latest news here.

Demand for NdFeB magnets (and NdPr REO precursors) for EVs is forecast to soar this decade

Neo is in a very rare position as a Western processor of rare earth oxides (particularly NdPr) as well as a producer of magnetic powders, NdFeB permanent magnets (from China facility), and other critical/high end materials. Neo is working to expand its production capabilities (plans a future expansion in Estonia to include rare earth magnets) and to build up its supply chain of raw materials (especially rare earths).

Advanced stage rare earths junior Hastings Technology recently acquired a 22.1% equity stake in Neo at C$15.00 per share. What's even more interesting is that the A$150m investment was backed by Wyloo Metals, a company owned by Australian billionaire Andrew Forrest and family.

Valuation is attractive on a 2022 PE of 4.6 and a dividend yield of 4.22%. Note 2023 PE is 7.51.

Risks revolve around sourcing rare earth materials in a supply chain dominated by China, fierce Chinese competition in the rare earths processing sector, and moderate country risks due to Neo's operations in many countries (China, Estonia, Thailand etc). Low to zero insider share holding is also a reason for some caution. Please read the risks section.

We rate Neo Performance Materials as a buy (ideally in stages to lower risk), best suited for a 5 year+ time frame.

As usual all comments are welcome.

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in NEO PERFORMANCE MATERIALS [TSX:NEO] over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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