NEM.TO - Neo Material Technologies Inc

[SharperDingaan]

Canadian based international company. Through its Magnequench and Performance Materials business divisions, the Company is engaged in the production, processing and development of neo powders, rare earths and zirconium based engineered materials, and minor metals including gallium, indium and rhenium. Magnequench, is engaged in the business of manufacturing and distributing high energy, rare earth magnetic powder. Operates manufacturing facilities in Tianjin, People’s Republic of China (“China”) and Korat, Thailand, as well as magnetic powder distribution facilities in Indiana, United States of America, and Tubingen, Germany. Performance Materials produces rare earth based and other engineered materials through its ownership in two Sino-foreign equity joint venture enterprises in China. Jiangyin Jia Hua Advanced Material Resources Co. (“JAMR”) is owned 90% by the parent company and Zibo Jia Hua Advanced Material Resources Co., Ltd. (“ZAMR”) is owned 95% by the parent company. The division also produces, reclaims, refines and markets high value niche metals and their compounds which are primarily used in the wireless, light-emitting diode (“LED”), flat panel display, turbine, solar and catalyst industries.  50% of Buss & Buss Spezialmetalle GmbH (“Buss & Buss”) located in Sagard, Germany that specializes in the recycling and recovery of rare metals.

 

Technology is patented. Per Note 8. Hitachi & Magnequench expire 2014, Buss & Buss 2015-2021. Refining is capital intensive, & supplier/customer relationships are critical. Very strong moat but it must be refreshed within the next 3 yrs (2014).  Very strong Balance Sheet & key position within the supply chain.

 

For those focused on valuation metrics we suggest reviewing the various brokerage research

 

Financials & company data

http://www.amr-ltd.com/assets/content/ir/ir_pr/a161/NEM_Presentation_May_13_2011.pdf

http://www.amr-ltd.com/assets/content/ir/ir_fr/a536/a537/NEM_FS_1Q11.pdf

 

The rare earth market is booming. Supply is controlled by China through a quota system, where 95% of the globes deposits are. Rising Chinese demand continually reduces the quota & pushes the global prices up. OTC market controlled by a oligarchy. Organized exchange coming in Aug-2011

 

Metals Market data

http://www.metal-pages.com/

http://business.globaltimes.cn/china-economy/2011-05/659535.html

http://www.rareearthmarketnews.com/index.php/elements/geology/

http://www.theaureport.com/pub/na/9702

 

The major (ready-to-go) mine outside of China is Mountain Pass in California, USA. Checkered history, but essentially now in the process of being resurrected as a US strategic reserve. Notable are that the major players would appear to be the US (as buyer), Neo/Hitachi (as refiner), & MolyCorp (as mine operator). EDGAR filings indicate that Molycorp has been in discussion with Neo for quite some time. Resurrection of this mine will materially affect the market.

http://www.srilankamirror.com/english/index.php?option=com_content&view=article&id=4254:rare-earth-elements&catid=76:features&Itemid=316

 

Neo has a convertible deb financing for 200M in progress. Notable is that it was increased from the initial 175M & underwriters have an additional 30M overallotment that is likely to sell. The result of the convertible has been a drop in price.  As the issue has not yet closed, we will not comment.

http://tmx.quotemedia.com/article.php?newsid=41302185&qm_symbol=NEM

 

Lots of possibilities, but you need to do your own DD & make your own decisions.

 

Disclosure: Over-weighted long position at the 8.50 mark

 

SD

 

[ericd1]

Sharp - I've been following REE companies for awhile - made some nice profits early on, but should have held on awhile longer :(  I'm out now, but your post on Neo has me intrigued again. Moly is leading the charge and building their mine-to-magnet program with several recent acquisitions including 90% interest in AS Silmet, one of only two REE processing facilities in Europe and Santoku America (SAI) one of the leading producers of high-purity rare earth alloys and metals outside of China.

 

It is my understanding processing and making high purity alloys/REEs is not easy and requires a fair amount of experience including trial and error and takes time to develop.

 

Moly's mine produces mostly light REEs and few heavy REEs, which aren't used for magnets, but are necessary for other hi-tech and military applications. The US and others needs a safe supply and I would expect down the road Moly may acquire HREE mining property.

 

Where do you see NEM fitting in this puzzle?  Are they a business partner or a possible acquisition target? Appreciate your thoughts!

 

 

 

[cashisking]

I have no insight into this particular company or the REE market in general, but thought it might be interesting for others to check out the recently available writeup of Molycorp on VIC. The author makes a compelling case against sustainability of REE prices and molycorp market cap. It also looks like NEM was written up on VIC in October - might prove useful to someone...

[ericd1]

OK thanks for sharing...REE prices are high, but Moly is partnering with majors and will likely develop long-term supply contracts. Plus being vertically integrated they will garner a larger profit margin than just mining the REEs. I believe there are higher margins in the processing and alloy production - thus the plan to provide "mine to magnets". Overvalued - perhaps!

[SharperDingaan]

Notable is that the underwriters took up their entire overallotment, & the market gave them 28.8M more than they actually wanted. The drop in share price points to an underwritin short with the proceeds financing the overallotment. Not the kind of thing you do unless you need to support a share price at some minimum level  ……

 

They wanted 192M so obviously something big, & something they’ve already committed to pending successful financing. They also seem to expect that post announcement the share price will run up quite a bit, & have left the door open to an equity issue. To be accretive the share price will need to exceed 13.80 

 

We would expect its some kind of new JV that is an outgrowth of their discussions, & this is to finance their share of it. Probably a game changer.

 

SD