Shares of rare earths metals producer Neo Performance Materials Inc. (NEO-T) are trading near all-time highs after the company struck a unique production agreement with a uranium player.
Neo shares hit a record $19.39 in trading on the Toronto Stock Exchange on Tuesday, after the company announced after market close on Monday a partnership with uranium miner Energy Fuels Inc. (EFR-T, UUUU-N) to launch a rare earths production initiative across European and North American critical material supply chains.
Neo shares were trading around $18.40 midday on Wednesday. The stock is up by about 230 per cent from its 52-week low of $5.55 on March 31 last year and up 33 per cent so far this year.
Shares of Energy Fuels hit a multi-year high of $8.78 on the TSX earlier on Wednesday, up more than 30 per cent from Monday’s close. The stock has since pulled back a bit to $7.65 midday.
Under the agreement, uranium miner Energy Fuels said it would process the monazite sands into a mixed rare earths carbonate in Utah for use as feed material for Neo’s rare earth production plant in Europe.
“Producing value-added rare earth materials from monazite resources is a massive step forward for our industry and for consumers of rare earths,” stated Neo CEO Constantine Karayannopoulos in a release. “Monazite is an excellent and rich source of rare earths, particularly the magnetic rare earths that are highly sought for new electrification applications.”
He said monazites from heavy mineral sands “have historically not been favoured due to the naturally occurring radioactive elements they normally contain,” but that Energy Fuels “provides the missing link in solving this challenge” by extracting uranium from monazite and putting it “to good use while also recovering monazite’s rare earth content.”
Canaccord Genuity analyst Yuri Link, who has a"buy” and $20 target on the stock, said in a note that the agreement is a solution to the limited rare earth feedstock in Europe.
“We believe this will allow Neo to increase operating capacity at its facility in Estonia, which currently operates at only 75 per cent due to limited feedstock supply from Russia,” he said in a note. He also said the initiative secures more rare earth supply “at relatively low cost and makes the Neo supply chain ‘greener.’”
He also said the move bolster’s the comapny’s independent non-Chinese supply chain.
“Recall, China controls 80 per cent of the world’s rare earth supply and its threats to cut exports have sent rare earth prices sky-high,” he wrote. “This new rare earth supply chain will be the first in 20 years in which U.S. monazite ore is used as feedstock outside of China.”
Stifel Nicolaus Canada analyst Ian Gillies upgraded the stock to “buy” from “hold” and boosted his target to $19.25 from $16, calling rare earths a “multi-year growth opportunity.”
“We view this as a key catalyst to push the stock higher and Neo expects double-digit demand growth for rare earths over the next 5-10 years,” he wrote in a note.
Scotiabank analyst Mark Neville increased his target to $20 from $17 and has a “sector outperform” (similar to buy) recommendation on the stock.
“While difficult to speculate on the potential financial impact ... it is our understanding that monazite typically has a high-value rare-earth content, containing neodymium and praseodymium – important elements in the manufacture of high-strength permanent magnets used in EVs, renewable energy systems, etc. – and ‘heavy’ rare earths,” Mr. Neville wrote in a note.
“It is also not immediately clear to us when Energy Fuels will be producing carbonate at commercial scale, although the company has produced a rare earth concentrate on a pilot scale and Neo’s Silmet facility has successfully processed trial quantities of its carbonate.”
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