Its latest plant will produce a rare earth oxide coating that can be applied to catalytic converters
Canada’s largest and oldest rare earths company is bucking the anti-China trend while operating in one of the most geopolitically charged areas, rare earths, a group of 17 metals that are used in everything from wind turbines to electrical vehicles to military equipment.
“There’s hair on investors’ concerns about (Neo) being in China,” Neo’s chief executive Rahim Suleman said. “I say that there’s hair, but I don’t think it’s warts. I think that the problem is quite honestly overstated.”
But Suleman added that his company has operated in China for three decades and understands the rules.
Still, in late August, Neo announced the sale of two midstream processing facilities in that country for US$30 million. In case any investors have been wondering whether it marked a prelude to the company’s exit from China, Suleman explicitly said the answer is no.
The sale of those facilities was a result of business realities, not geopolitical pressure, he said, since Neo’s competitive advantage in the midstream space in China had eroded as its rivals grew larger and achieved economies of scale to purchase feedstock.
“At core, we are a downstream company,” Suleman said.
Its latest plant in Zibo — which Suleman visited on Friday — will produce a rare earth oxide coating that can be applied to catalytic converters in internal combustion engine vehicles.
By Monday, he and Vasileios Tsianos, vice-president of corporate development, had already flown from there to Thailand, where the company operates one of the largest permanent magnet facilities outside China.
Tsianos said permanent magnets, made from rare earths, are far stronger than ordinary magnets and are considered critical to modern technology because of the space and energy savings they provide.
“Rare earth permanent magnets are energy-saving magnets,” he said. “If you use a small amount of them in a motor of anything, whether its an offshore wind turbine, an electric vehicle or a water circulation pump in a green building, you save a multitude, or an order of magnitude, in energy use.”
The obscure rare earth metals have emerged as a source of tension between Western countries and China, which dominates the rare earth supply chain. By Suleman’s estimate, China controls 92 per cent of the downstream magnet supply and 60 per cent of the upstream raw materials, though he said the numbers fluctuate year by year.
He said Neo is unlikely to ever leave China because of the size of its market, but he added that customers have raised concerns about the geographic concentration of rare earths.
Suleman said his company thinks about the world as parallel supply chains.
“We’ve got a thesis: that it’s important to provide customers with a dual supply chain,” he said. ”We don’t talk about the world in terms of ex-China or outside; we talk about the world as parallel.”
Neo needs to be able to supply its customers both in and outside of China. To that end, it is building a permanent magnet production plant in Estonia, where it already operates a rare earth separation plant.
Suleman said Neo would love to build up its North American footprint, but two things need to happen: customers need to place a premium on local suppliers and governments need to develop policies to nurture the new industry.
“We need both,” he said, “governments that are proactive in building an industry and we need customers that are willing to make those investments and are willing to work with local suppliers, and not just use a Chinese-based supplier because it’s cost-effective.”
He added that those conditions are beginning to take hold.
Investors may be waking up to the opportunties, too. In the past six months, Neo’s share price has risen 22.8 per cent to $7.82.
“What the company is doing is critically important, to get this geographic diversity,” Suleman said.