The rare earth business is remarkably similar to the O&G business, an industry I’m highly familiar with. If we replace China with Saudia Arabia/OPEC, replace rare earth miners with upstream O&G companies, and replace rare earth separation and magnet makers with oil refiners, we end up with a very similar industry structure.
The similarity means that we are likely to witness increasing vertical integration between rare earth miners and value-add players like NEO. The O&G industry is drives towards vertical integration to lower earning volatility and ensure offtake, the same applies to REE. This is why every major rare earth miner such as MP Materials, or upcoming miners like Hastings speak of mine to magnet strategy. This is also why NEO was acquired in the past by Molycorp in 2012 and why it will be acquired again by a rare earth mining entity.
The reason for a combination with a minor like MP or Hastings also works in the advantage of NEO, the market obviously doesn’t give NEO credit for its role in the rare earth supply chain. By combing with a miner, both NEO and the acquiring upstream rare earth company should benefit from a higher valuation, a stabilization in earnings volatility and access to additional resources needed scale quickly, thus reduce China’s hold on the industry.
If NEO will continue to trade at current levels (below the value of its cash and inventory) the company will be subject to a takeover offer sooner rather than later. Afterall, it is the responsibility of the board to maximize shareholder value, and if vertical integration is the key to unlocking this value, a bid for the company is just a question of time.
Outside of the above, I’ve expressed some concerns in the past about magnets free of REEs, this article by IEE spectrum (published yesterday) beautifully explains why this is likely not to happen:
https://spectrum.ieee.org/permanent-magnet-motor I have tripled my holdings in NEO this week, and will continue to add if continue to trade at or close to current levels.