After smoothing out a funding disagreement with the Twiggy Forest-owned Wyloo Holdings, rare earths developer Hastings Technology Metals (ASX: HAS) says its $150m investment in a Canadian magnet manufacturer, Neo Performance Materials, is starting to hit its straps.
Back in 2022, Hastings, which has been developing the Yangibana rare earths mine in WA, borrowed $150m from Wyloo by way of an exchangeable note to pick up a 21.5 per cent stake in Neo, the only western manufacturer of rare earths magnets outside of China.
The purchase was made on the back of a vision being developed by Hastings Chairman and major financial backer Charles Lew that could eventually see both companies merged to create a vertically integrated “mine-to-magnet” international powerhouse – the only company of its kind outside of China.
At the time Neo was sourcing rare earths out of Russia, but hostilities in Ukrain led western Governments to impose trade sanctions on Russia, which then put Hasting’s massive rare earths deposit in Western Australia firmly in the frame.
Hasting’s says Neo has tabled a solid set of numbers from its magnet operations for the September quarter with adjusted EBITDA hiking by some 50 per cent year-on-year to US$19.6m (AU$29.7m)
Neo has subsequently raised its annual EBITDA forecast to US$52-$55 million (AU$79-$83 million). Notably, Neo has declared a shareholder dividend of CAD 10c per share, worth about AU$987,000 to Hastings, bringing the total dividend so far received from its investment in Neo to AU$8.9 million.
In addition to its North American operations Neo is well advanced in its plans to build a sintered magnet facility in Estonia, which, once complete, will generate a second source of cashflow. The push to complete the US$75 million (AUD113.5 million) development came after the company secured a U$50 million (AUD$75 million) line of credit from Export Development Canada. The timely funding comes on top of a 2022 grant of US$20 million (AUD$30 million) from the European Union’s Just Transition Fund.
Neo’s Estonian facility, the only rare earths metallisation plant in Europe, is particularly important to Western Governments’ strategic plans to lock up secure supply chains for critical metals outside of China.
Hastings recently locked horns but quickly settled a dispute with funding provider and strategic partner Wyloo over a $5m loan made to Hastings by its Chairman Charles Lew.
While the $150m loan given to Hastings by Wyloo to buy the 21.5% stake in Neo is secured by the same Neo shares, Wyloo nonetheless took issue with the $5m loan from Lew that was secured over other Hastings assets.
To resolve the dispute Lew removed the asset security over his $5m loan, which notably, takes his total personal investment in Hasting’s to $60m, $55m of which was equity. Hastings has raised more than $400 million in equity to-date.
Wyloo argued the $5m Lew loan and its security breached the original $150m funding agreement – Hasting’s says it doesn’t but Lew offered to remove the security to bring about a resolution – a move that appears to have smoothed the waters with Wyloo.
Commenting on the resolution Wyloo Chief Executive Officer, Luca Giacovazzi said: “Wyloo is supportive of Hastings’s efforts to fund the remaining capital needed for the Yangibana Project.”
We are pleased to have resolved this matter swiftly with Wyloo and there is ongoing goodwill between the parties. With resolution of this issue, we will continue to progress our plans for the phased construction of the Yangibana Project. With one-third of capex spent-to-date (September 2024) for stage 1 of the Project or A$223 million in total Project costs, we are considering optimal funding solutions to secure the balance of the funding that is in the long-term interests of our shareholders.
Hastings Technology Metals Executive Chairman Charles Lew
Hastings’ key project, the Yangibana rare earths operation 270kms northeast of Carnarvon is making steady progress, with construction now a third complete and $223 million already invested. The site features a 294-room accommodation village, a 1.8-kilometre airstrip, telecommunication towers, 30kms of water pipelines and 20kms of access roads.
The majority of long lead equipment for the beneficiation plant such as the SAG mill, the regrind mill and flotation cells have been purchased and are being held in storage in Perth.
Together with the hydrometallurgical plant equipment, including an off-gas scrubber, a rotary kiln and thickeners, also previously bought and waiting in storage, everything is now ready for mobilisation in preparation for stage two of the development.
The engineering and design works for the key processing areas are well advanced together with the bulk earthworks, concrete, structural engineering, mechanical and piping systems. The electrical, instrumentation and control system engineering and design has also all started.
Hastings is attempting to time its run to meet an expected second surge in the electric vehicle and rare earths market. Its neodymium and praseodymium rare earths are key materials used in the manufacture of industrial magnets, a central component of electric engines.
Neo is the global leader outside of China in the manufacturing of those magnets and the potential bringing together of Hastings, with its massive in-ground rare earths deposit and Neo, with its magnet manufacturing capability appears to be a sublime pairing.
If Wyloo and Hastings can manage to keep their batons in their respective knapsacks now the dispute appears to have been settled, both could be in danger of making serious money when the rare earths market comes roaring back as many expect that it will.
Controlling the rare earths supply chain all the way from the mine to the magnet manufacturing plant, part of Lew’s original vision, would represent a remarkable vertical integration that could capture value all the way upstream in the new energy space that appears here to stay.
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