Neo Performance Materials Inc. (OTCPK:NOPMF) Q4 2021 Earnings Conference Call March 10, 2022 10:00 AM ET

Company Participants

Ali Mahdavi – SVP, Corporate Development & Capital Markets

Constantine Karayannopoulos – President and CEO

Rahim Suleman – Chief Financial Officer

Conference Call Participants

David Ocampo – Cormark Securities

Mark Neville – Scotiabank

Frederic Bastien – Raymond James


Please standby. Good day and welcome to the Neo Performance Materials 4Q 2021 Earnings and Business Update Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ali Mahdavi. Please go ahead, sir.

Ali Mahdavi

Thank you, operator, and good morning, everyone. Just as a reminder a replay of this call will be available starting tomorrow in the investor center on our website at I am joined this morning by Neo President and CEO, Constantine Karayannopoulos, who will provide opening remarks, and Rahim Suleman, Neo's Chief Financial Officer, who will give a short overview of the Company's fourth quarter and full year financial results.

Please note that some of the information you will hear during today's presentation and discussions will consist of forward-looking statements, including, without limitation, those regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, other income and expense measures, cash returns and future business outlook, including potential expansion plans.

Actual results or trends could differ materially from those discussed today. For more information, please refer to the risk factors discussed in Neo's most recent financial filings, which were filed on SEDAR earlier today and are also available on our website. Neo assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. Financial amounts presented today will be in U.S. dollars, non-IFRS financial measures will be used during the conference call. Further information regarding Neo's use of non-IFRS measures is available in Neo's year-end earnings press release, which is available on SEDAR and on our website at

Let me now turn the call over to Constantine.

Constantine Karayannopoulos

Thanks, Ali, and good morning everyone. We're proud to report that Neo performed in an outstanding manner in 2021, finishing the year in a very strong position. This performance provides us with the ability to take advantage of a number of opportunities and execute on several strategic growth initiatives. In the fourth quarter, we're reported sales of $153 million and adjusted net income of $16 million, or $0.39 per diluted share. We generated almost $20 million of adjusted EBIDA during the quarter, the fourth consecutive quarter of elevated profitability. On a full year basis, we reported a record $539 million in sale and adjusted net income of $55 million or $1.41 per diluted share with nearly $82 million of adjusted EBITDA generated, this is by far the best year since the companies returned to the Toronto Stock Exchange in 2017.

As we envision a world where Neo helps to accelerate the adoption of a range of sustainable technologies, we focus on four growth pillars: first, protect, strengthen and grow our core business; second, innovate into next generation technologies; third, expand and diversify our geographic footprint in order to capture growing demand for our specialty rare earth products in Europe and North America; and fourth, improve our global sustainability leadership. I am pleased with the significant progress we made in 2021 on all of these fronts.

In terms of financial performance, our top line grew 56% year-over-year. More telling, however, is a comparison of 2021 to the pre-COVID baseline of 2019 over which period our top line grew 32% on a combination of improved pricing and volume growth. To me that tells a compelling story of growth, resilience, technological innovation and growth potential. By improving our operational excellence across all three of our business units, we continue to become more competitive and our industry leading reputation for excellent customer service coupled with our technology leadership in the markets we serve has allowed us to continue to win new business.

In another key area, our health and safety practices continue to lead the industry. I'm pleased to report that our operations have exceeded our own aggressive internal goals for safety incidents and proactive reporting, getting these details right day in and day out helps to establish the culture of excellence. Our profitable operating model further protects and strengthens our core businesses and allow us to reinvest across the company, whether in new product development, in expanding our capacity in geographic footprint or in formalizing our sustainability programs.

Neo is uniquely positioned in the global rare earth industry to capitalize on opportunities across the rare earth supply chain, ensuring a reliable supply of specialized materials to our customers is job number one for us, this reliability is even more important today, given that lingering macroeconomic headwinds.

It's now two years since the World Health Organization declared COVID the global pandemic, even as the Northern Hemisphere comes into spring temperatures and COVID test cases – COVID case rates rather are declining in the Western world, we know that there will be further challenges this year.

2021 was far from a normal year. Intermittent demand from automotive OEMs driven by the semiconductor shortage, which lingers into 2022, made production planning for our customers and our plans quite difficult. We're also continuing to observe global logistics problems. It is not uncommon for containers to be delayed at ports for months placing additional strengths on the supply chain.

Of course, these macro headwinds pale in comparison to the war in Ukraine. The tension in eastern Europe is top of mind for all of us. Neo does not have significant market exposure to either Ukraine or Russia. And from a direct operations perspective, we have had no significant impact to our operations in Sillamäe, Estonia, which processes rare at feed stock for both Russia and the United States.

But, as you would expect, we're working with our advisors to monitor developments closely and we're in close and frequent contact with Estonian and EU government officials who continue to encourage us to maintain and expand our operations there.

Our Silmet plant is the only commercial producer of separated rare earths in Europe. And one of only two producers of aerospace grade tantalum and niobium in the European Union. The products we make in Estonia are vital to essential technologies on which major European, North American and Asian manufacturers rely every day.

We're driven to maintain production of these strategic materials. We also believe it is important to continue providing jobs to our Estonian employees and support their families that helps provide stability and support to the overall Estonian economy. And the Estonian government has expressed its appreciation for our commitment.

As lamentable as a tragic war in Ukraine is our management team has successfully navigated through many geopolitical issues over the past 30 years. These conflicts are unfortunately a manifestation of the diverse supply chains are essential. Over the past year we have introduced a new source of rare raw material for Estonian operations, one that originates to North America. This new supply helps to complement our historical feed source. It significantly derisks the availability of rare earth supply for our European and global customers.

Our partners at Energy Fuels are accelerating their current production campaign, and we expect the next shipment of raw materials from Utah to be well ahead of schedule. This will add to our existing safety raw material stocks in Estonia.

As we continue to strengthen our global operations, we will continue to source alternative supplies of these critical raw materials from around the world.

I have to say that I find it personally disturbing, and I'm sure all of our employees share this feeling to be discussing the strength of our business while there's such a loss of life and tragedy in Europe at a level not seen since the Second World War. But it is also pragmatic. It highlights the need for a resilient business model in light of the risks that we all face today. A global pandemic, supply chain interruptions, profound commodity inflation, geopolitical hostility, and an accelerating climate crisis. Taken together it is imperative that we continue to strengthen our business model by meeting our customers where they are located. We can, and we will further diversify our operations and supply chains.

Let me now say a few words about the major demand driver in the rare earth industry, electric vehicles. They're undergoing a substantial optimism around the globe, driven by energy transition opportunities. Recent sales of electrified and alternative fuel vehicles around the world are a key example. Adoption cycles for electric vehicles that contain Neo’s magnetic materials and magnets in their motors and sensors continue to shorten.

Battery electric and plug-in hybrid vehicles represented nearly 25% of passenger vehicle sales in the European Union in the fourth quarter; an additional 20% of pure hybrid vehicles containing Neo’s next-generation emission catalyst were sold. That's 45% of automotive sales across the European market are vehicles with electrified drive-trains and that's well ahead of where consensus industry forecasts were just one year ago.

Similar dynamics are playing out in the rest of the world. As China reported more than 3 million battery electric and plug-in hybrid electric vehicles sold during the year. In North America, 11% of passenger vehicles sold during the fourth quarter were electrified while this is far below Europe is 45%. It represents a near doubling of electrification compared to the prior year.

These electrified and hybrid platforms continue to provide ample opportunities for our magnetic materials. The fourth quarter saw continued strong demand for Magnequench product, as demand for rare earth magnet powered accessory motors for seats, trunks, automated doors, and numerous other power and sensor functions continues to grow. Magnequench materials are sought after as a preferred option for many OEM supply chains. Simultaneously in order to achieve greater energy efficiency, motor design and development trends to continue away from brush motors, to brush with DC designs, incorporating rare permanent magnets.

Our R&D and motor application development teams are further growing their skill sets and capabilities to more effectively capitalize on these opportunities. On the magnet side of the business, volumes continue to remain a very strong and growing part of that business. We've been able to fill our expanded magnet production capacity over the year, and we'll be seeking to further expand to meet customer demand in multiple markets.

We also see increased demand for larger magnet sizes and we're developing more complex magnets to meet this demand. This innovation combined with Magnequench’s consistency and quality is helping to unlock significant growth within our magnet business. The know-how to constantly innovate and consistently manufacture these magnetic materials and magnets is an extraordinarily high technical hurdle. Leveraging Magnequench’s 40-year history in magnetics, positions us well as electrified vehicles continue to gain consumer acceptance.

Our efforts to expand rare earth production in Europe and move into the manufacturer of rare permanent magnets for automotive drive-trains and in renewable energy systems continue to advance. We're also looking at potential expansion into other types of Neo magnets and applications in Europe. It is fair to say that government leaders across Europe currently have other pressing matters on their minds, but a clear consensus for action to support Neo's plans for such expansion has developed and is supported by a growing coalition of government and industry stakeholders within the EU.

We look forward to providing further updates along these lines in the quarters ahead. The recent trend for increasing rare earth magnetic materials prices has continued through the fourth quarter and into the first quarter of 2022. Recent pricing for neodymium and praseodymium oxide has approached $175 per kilogram, which is representative of the current demand environment. These higher levels are being supported in the market today with buying activities, following the Chinese New Year or better say the Lunar New Year.

Both C&O and Magnequench have benefited from this higher pricing environment. That said, pricing is a double edged sword, and we have absorbed high raw material cost. And overall inventory inputs, as Rahim will discuss. We have seen these types of price movements before and we closely monitor our inventory doing this period.

Overall, relative to a pre-COVOD baseline of 2019, Magnequench’s product volume increased 9%, while adjusted EBITDA was 30% higher than 2019 at $48 million. On the C&O side in our rare earth specialties portfolio, the chemicals in oxides business continue to outperform. In 2021, this business unit had the strongest product volume sold over the past five years in a very strong pricing and demand environment.

Next generation products continue to lead the way across all applications. Within the rare metals unit, our group continues to make importance strategic efforts to strengthen and diversify that business. With introduction of new products over the past two years, excuse me, particularly in the electronics market; we’ve been able to return to a position of profitable strength, even in the absence of a strong aerospace sector. The traditional made market for our products, which is not yet fully recovered from the COVID-related slowdown.

More recently, this has been aided by higher prices for tantalum as higher value applications in the semiconductor space, continue to demand that material. Over the next two years, it is anticipated that the aerospace sector will return pre-pandemic buying patterns. And we have confidence in our business’ ability to outperform.

On sustainability in each of our business, a lot of effort has gone toward our first three pillars I mentioned earlier in my comments, protecting and strengthening our core, expanding through innovation and diversifying our supply chains and global footprint. But the final common thread in all three businesses is an increased emphasis on sustainability performance and leadership.

Nearly all of our production facilities now measure the sustainability performance through the EcoVadis methodology. Two of our Magnequench plants recently earned high marks from EcoVadis for their outstanding sustainability performance. Other new facilities are tracking to improve the results. That sustainability story will soon be easier to understand for all of our stakeholders as we’re finalizing Neo’s inaugural sustainability report.

As many of you are aware, this endeavor is a comprehensive and very thorough review of a company’s operations, policies and procedures. Neo has always endeavored to do the right thing for our employees, customers, shareholders in our communities, when it comes to sustainability and environmental protection. We have led the way in many fronts, particularly with recycling and circular economic models for nearly three decades of operations in the rare earth processing industry. As we expand our sustainability practices across the board, we’re now also taking advantage of new tools to effectively measure and communicate the depth and breadth of what is common to us behind the scenes.

Accessing and tracking the right data both quantitative and qualitative is vital to establishing long-term goals and further integrating sustainability into Neo’s overall operating strategy. I would also note and remind you that Neo became a signatory to the United Nations sustainable development goals during 2021, and were focused on how to improve the quality of human life. Protect human rights was our local communities. Last as we think through operating trends at the start of this year, the first quarter of the year is typically seasonally slower across our businesses with the lunar new year holidays across China and most Asia while consumers and supply chains around the world, digest their spending over the previous Christmas season.

This year is no exception. In fact, we’ve seen a slightly longer slow down this year due to the Beijing Winter Olympics. There are some conflicting signals from the automotive industry as well. A certain OEMs are still adjusting operations with the ongoing semiconductor chip shortage. That said we’re current anticipating a general recovery across the automotive industry, as we approach the second and third quarters this year, bearing any significant global supply changes or other unforeseen impacts from events on the world stage.

Global macro trends towards greater use of sustainable technologies and global decarbonization provide long-term when behind Neo’s technological sales. We look forward to helping our customers and society accelerate towards those goals.

With that, I will now turn the call over to Rahim.

Rahim Suleman

Thanks, Constantine, and good morning, everyone. We finished the full year in the fourth quarter with most of the previously described market trends, still intact. Pricing remains dynamically higher, which has continued into the first quarter of 2022. We’ve talked about the impact of short term price movements in the past and its impact on lead-lag, which is the outcome of having purchased material in past months and selling it at today’s prices.

During the lead-lag, during this year, lead-lag was a significant positive factor in our results. However, it isn’t the only or primary factor. The higher prices that we saw throughout the year and the continuing price levels that we see early in 2022, yield additional dollar value margins to the business independent of the lead-lag effect.

We generally don’t try to predict rare earth prices going forward, but we think it’s fairly reasonable to believe that the demand for the critical rare earths and rare metals that we supply, particularly the magnetic rare earths will continue to grow, driven by the increase in electrification and the need for more energy efficient solutions going forward.

Certainly, we continue to see a strong demand profile for our products with these trends. In this regard, our strategy hasn’t changed, provide value added solutions for tomorrow in growing and markets. Related raw material and underlying commodity cost changes filtered into the cost side of our business as well.

As a result, the higher pricing environment has substantially increased our working capital as of year-end. We expect that this will be a key theme for us to manage throughout this year and we are in regular communication with our customers to help manage inventory where possible. I’ll revisit our working capital and cast situation in a few minutes.

End use demand for Neo’s industrial advanced materials also continues to improve, despite the persistent challenges related to the semiconductor chip shortage and general global logistics interruptions. The overall economic recovery has continued in the automotive industry is also expected to extend into the aerospace industry over the next 18 months.

Consumer electronics and healthcare applications also remain strong for us entering 2022. And adoption for things like our environmentally friendly water treatment solutions continues to increase and continues to show positive results. As the world has managed to the recent COVID Omicron spike, we believe that the adverse effects directly related to COVID-19 will continue to diminish.

Our fourth quarter financial and operating results reflected these trends and the overall strength across our business. As constantly noted, we reported $153.4 million of revenue in the quarter of 39% increase from the prior year. This elevated revenue is driven by both higher volumes and the higher pricing for certain rare earth and rare metal materials. We generated $19.7 million in adjusted EBITDA during the quarter, capping off a very strong year with a full year adjusted EBIDA of 81.9 million.

For perspective, that annual EBITDA is 184% higher than 2020 and 52% higher than a pre-COVID 2019 year. During the fourth quarter, Magnequench saw very good demand for magnetic materials across precision motors and automated sensors. Yet there was a notable down tick in our product volumes, driven by the interruptions related to the semiconductor issue.

We believe that this will have a continuing impact on certain pieces of business going into the first half of 2022. That said, the opportunity for further product growth, particularly driven by the electrification and hybridization of automobiles remains a long-term tailwind for Magnequench. Our magnet business, where volumes doubled during the past year continue to outpace our expectations.

Within chemicals and oxides, we experienced very strong demand across the magnetic materials portfolio. There also continues to be strong demand for our auto emissions catalysts, and we continue to gain momentum in our water treatment business. We are cautiously optimistic that all three of these product categories will continue to throw strong growth in 2022.

Rare metals have the strongest performing quarter of the year, aided by the diversification and the higher value products along with improved pricing for hafnium and tantalum. Our team was nimble and quick to execute and deliver on more sales in this improved pricing environment. This diversification and refocusing of our manufacturing capacity on more profitable products help the division generate its second highest quarterly adjusted EBITDA over the past five years.

As the aerospace continues to firm up, we have some additional opportunities as we think through strategic growth in 2022. During the quarter, our SG&A expenses were elevated primarily due to the primary and secondary offering completed in the fourth quarter and also due to higher legal expenses related to intellectual property actions throughout the year.

Our cash balance remains at healthy 98 – sorry, $89 million and it’s supported by the additional debt capacity we put in place in 2021 and the primary capital offering noted earlier. During the year we invested $70 million into our working capital driven primarily by the increase in magnetic rare earths pricing and the associated raw materials. And to a lesser extent, by the increased finished goods output of the Auto Catalysts products in preparation for the planned upgrade and relocation of our primary production facility for these products. We also see longer transportation times tied to global logistics challenges and this has caused us to hold more raw materials than finished goods.

To help complement our cash balance and provide additional flexibility to pursue strategic growth opportunities, we completed a primary equity capital issuance in the fourth quarter for $38 million. And we executed two new credit facilities totalling about $38 million as well during the year. As a result, sorry, as of year-end we have $6.5 million drawn on these facilities resulting in a net cash of $83.8 million. Despite the higher rare earths prices and the impact on working capital, Neo remains in a strong financial position and is well prepared for the growth that we see ahead. During the year we invested $9.5 million in capital expenditures and paid $9.4 million in cash taxes. And lastly, we returned $12.8 million in dividends to our shareholders during the year.

The strength of the economic recovery throughout 2021 presented an opportunity within each of our businesses. And after pairing back capital expenditures during 2020 and focusing on operational excellence within each of our business units, we were strategically positioned with our customers to grow faster than the general macro recovery. We are encouraged by the prospects for 2022 and we believe in our long-term growth initiatives. We continue to improve our operational excellence and we look forward to more fully updating you on our sustainability strategy.

Thank you for your time today and we’re happy to turn the call over to take questions. And will ask Justin to coordinate that for us.

Question-and-Answer Session


[Operator Instructions] And our first question today will come from David Ocampo with Cormark Securities.

David Ocampo

Thank you. Good morning, everyone.

Constantine Karayannopoulos

Hi, David.

David Ocampo

Constantine, I’m curious, what percentage of the feed stock at your Silmet facility is coming from Russia today? And how do you see that evolving over the next year or two? Is it something that you reduce down to a certain level? Is there a target that you guys have in mind?

Constantine Karayannopoulos

Sure. Thanks, David. I’ll refer you back to previous calls and conversations on the subject. Silmet buys currently about 70% of its feed rare material from Solikamsk Magnesium Works in Russia. The other 30% comes from Energy Fuels. As I pointed out Energy Fuels is accelerating its campaign – its current campaign. And we have had many discussions about moving future campaigns forward and expanding them accordingly.

Neo Performance Materials Inc's (NOPMF) CEO Constantine Karayannopoulos on Q4 2021 Results - Earnings Call Transcript

So we don’t have a set target. We’ve been very happy over the years with Solikamsk they’ve been a supplier to Silmet for over 30 years, very reliable supplier. Unfortunately with the war Ukraine in the sanctions regime, there’s uncertainty hanging over it. The company that supplies us is not subject to sanctions, at least not yet, as far as we know. We’re working with a very large global law firm that does a lot of work in sanctions and they’re advising us on the legal aspects of everything we do.

So I – the problem with our current – with Solikamsk is that they cannot supply, they cannot increase their supply to Silmet or that’s why over the last couple of years, as we’re trying to increase rare production and go downstream into magnet production in the Estonia, we needed to bring in other supply sources. Now if at some point that raw material source becomes part of sanctions, we will have to further accelerate our work with energy fuels and the work with about half a dozen per emerging producers from around the world to displace that source of material and so. For the time being though and I guess if 2014, 2015 is a guide during the sanctions imposed in Russia over its annexation of Crimea, neither of the products nor the company were the subject of any sanctions or any restrictions.

Listen, as I mentioned in my comments, the Estonian government has been very clear that they would like us to maintain and to maintain current production and if possible, expand it and ultimately our responsibilities to all of our stakeholders, including the 400 plus families in Sillamäe that depend on that plan for their livelihood. So, we’ll continue to operate that facility one where or another, but clearly given what’s go going on we are accelerating all of our efforts to find additional, and secure additional sources of feed for that plant, as well as our, all of our other plants. I mean in the previous call, in the third quarter call; I mentioned that we had started receiving raw material supply is from Vietnam into one of our Chinese plants.

So, we have a pretty good idea where raw materials in the world are coming from and where they could be coming from. And we’re talking with a large number of additional and emerging producers. I don’t know if that answers your question, David, but given the fluidity of the situation, I don’t think I could give you anything more specific than that.

Rahim Suleman

Maybe if I can just add one comment, and I think folks already do this, but Sillamäe facility is really half wear metals and half rarer. So the commentary that we’ve talked about in terms of raw material supply affects the rare earth side of the business, there is no sourcing from Russia on the rare metal side. So half of that facility is completely unaffected from that raw material perspective and is constant tied about the other half, we are working through various alternatives to support.

Constantine Karayannopoulos

That’s Correct.

David Ocampo

Yeah. And, Rahim, how many months of supply of inventory do you guys have on hand if there is any disruptions?

Rahim Suleman

Well, I think that, so first of all, again, from a rare metals perspective, a, we have lots of inventory, and b, we don’t have any imminent supply disruptions. Secondly, I think that there are, I would say several months of, more than two, more than three through that supply chain. And I think that we continue to be confident that we’ll continue to support our customers. And as you know, we have alternative facilities around the world that can also support our customers as if we do end up short on any particular supply.

David Ocampo

Yes, that’s helpful. And then one final question for me, and Rahim, you touched a bit on this as it relates to the lift that you guys have received from rare pricing, just moving up here. I’m just trying to zero in, and I know we asked this basically every quarter now, how much of that was moving the lower price inventory versus, just getting a higher dollar margin spread as prices, move up, just trying to zero in on what’s sustainable here going forward.

Rahim Suleman

Yes, for sure. I appreciate the question. And I think it’s the right question to ask. Unfortunately, there’s not an easy answer for that. Like there’s a 100 moving parts and it all depends on what we sell in any given period, so when we buy material, some of it moves through the process into customers sooner than others. So it’s really difficult for us to separate how much of it is driven by sustainably higher prices and how much of it is, is just lead lag. But I’d suggest to you that sustainably higher prices is a larger impact on an annual basis than lead lag.

David Ocampo

Okay. That’s it for me. Thanks a lot, guys.


Thank you. [Operator Instructions] And our next question, come from Mark Neville with Scotiabank.

Mark Neville

Hey, good morning. Excuse me, guys. Maybe just to follow up in, so discussion, Rahim sorry, just on the capacity, half metals and half birth separation the capacity there, I think it was cooler around 2,500 kilos, I believe. Is that the numbers that you're referencing sort of half, half and half of that number?

Rahim Suleman

No, its 2,500 tons of the rare earth and then rare metals has a different capacity and the unit of measure is entirely different. So when, I mean, it's still tons, but the type of product is entirely different. So we're talking about half and a half. We're talking largely about the footprint of the plant, the revenue generated by the plant and the like.

Constantine Karayannopoulos

Mark we are running a little hard on that, on the railroad side. Especially since we were able to bring in the energy fuels source into the mix, so yeah, ideally we would like to run the rare side of sediment around the 3,000 ton a year until we have an internal need for more material as we unfold our Magna strategy, which will either necessitate us buying more magnetic rare earths from the market or increasing the capacity of the rare earth side.

Mark Neville

Okay. And just on sort of potentially buying alternative sources supply I guess I'm just curious how difficult or easy is that again? I know there's not that many suppliers, but presumably you're one of a handful of buyers and I guess I'm curious, why couldn't you just source from – more from the U.S. or Australia or China. I'm just trying to understand the dynamic of the supply situation.

Constantine Karayannopoulos

Yeah. China is not an option because it's not allowed to export un-separated rare earth streams from China. So that's not on. The U.S., as I said were, we put the a very, very attractive supply chain route with energy fuels where energy fuels buys a byproduct, monosite from an existing mining operation in the United States. They recover the products that are part of their business, mainly uranium and thorium. And we've helped them put together a flow sheet that takes the rare earth into a feed material that would work for our plant.

And that's what that is. So the ability to would love to get more from them, no question about it, but their ability to give us more depends on their ability to secure additional sources of monosite. So this is a little bit beyond our control, but I can tell you if you talk to Energy Fuels and Mark Chalmers CEO, he's been going around the world looking for those additional sources of monosite. So I think it's a matter of time and not a long time because at least I've walked the plant. I've talked to the folks; I've seen it with my own eyes. They have a lot of capacity to process additional quantities and massive quantities of monosite.

So that's not where the bottleneck is. The bottleneck exists in the ability to source monosite from around the world. And the sources of monosite are fairly well known. The United States, as I mentioned, Brazil, Africa and Australia being the primary one. So as I said, I think it's a matter of time before that falls into place. There are – there is a number of emerging producers apart from the obvious ones. I mean, there's Lynas which historically has been a producer in Australia with a refinery in Malaysia.

And of course the MP materials who are shipping all of the mineral concentrates to China but they will be implementing the startup of their rare earth refinery in California in the near future. Apart from these two big names there's a number of emerging producers, and I think we're talking to all emerging producers that have a high chance, high likelihood of being in production in the next two to three year. I don't know if that answers your question Mark or if I miss any part of your question.

Mark Neville

No, no, that's super helpful. I guess just – I guess just a follow up to that, the [indiscernible] materials would currently be producing. Like, would that be because it currently stands, like could you buy that or is that sufficient for or what you need now for sufficiently process?

Constantine Karayannopoulos

No, that that's a mineral concentrate, that's sort of beneficiated like we cannot probably we don't have a permit to process mineral concentrates, that's why, the mineral for example, what energy fuels does it processes the monoxide mineral and gives us a feed material that easily soluble into our process. We don't have the capability to not the permits in Estonia to process mineral concentrates. That's a highly intensive chemical process, which we just don't have the capability.

Mark Neville


Constantine Karayannopoulos

So that has never been, yes.

Rahim Suleman

That would never discuss with NP.

Mark Neville

Okay. Sure, sure. Well that helps a lot. And just in of the, again the EU funding to expand Estonia again, and just any update there, I assume it's or potentially getting more complicated now, maybe not. Yes, just sort of curious how all that stands?

Constantine Karayannopoulos

Yes. There isn't anything meaningful to update the market on, as I hinted in my comments the various – the various offices in the EU and in Estonia, they have some pretty serious things to work on and consider. But the conversation still goes on. The express of commitment to this are still as strong as they they've ever been. And again it's certainly a 2022 development but things need to happen in the rights and that sequence at times gets a little bit disturbed by other priorities, which I think should be fully understandable.

Mark Neville

Yes, absolutely. All right, thanks a lot. I'll turn over. I appreciate the time.

Constantine Karayannopoulos

Thanks Mark.


[Operator Instructions] We do have a question from Frederic Bastien with Raymond James.

Frederic Bastien

Hi guys. Sorry. I thought I had pressed one already, but I hadn't. Congrats on the results. I guess going by [indiscernible], I mean, I guess you raised a bit of funds back late last year with the intention of obviously deploying that into growing capacity. Presumably it's fair to say that this is on ice right now, given the situation we're seeing.

Constantine Karayannopoulos

Well on the ice? First of all thanks Frederic. On the Ice yes, until the developments in terms of our discussions with both the Estonian and the EU governments get to the point where we can announce and deploy that capital. They're – they're no, so I guess in a waiting pattern but there's nothing, anything more complicated than that. There needs to be a set of decisions that are made both at the national government level in Estonia as well as the EU level. And for obvious reasons things are taking a bit longer to come together given the circumstances. But there's really no red flags, yellow signs, whatever you want to call them, are mainly in all of the conversations we're having both with the various commissions within the EU and a number of member states that are very vocally supporting this project beyond Estonia. I don't see any areas of concern other than things take time and given the circumstances that take a little bit longer time to come together.

Frederic Bastien

Okay. Thanks. In the past few years you've been having success with respect to applications, for water treatment and also fire retardant. Can you talk a bit about how these initiatives are going and whether of the growth you're seeing from these end markets effectively meeting your, what you were expecting to get out of the business?

Constantine Karayannopoulos

Yes. The water treatment business had a pretty good 2021, and we see opportunities for a lot faster growth in 2022, especially as wastewater emission levels or at least the limits are becoming tighter and tighter for phosphorus materials. So this is definitely a positive development. The fire retardants you mentioned is very much a development project. We've done a lot of, it's no longer really an R&D project because it's out of our labs, but it's in the hands of customers now that are going through evaluation and scale up.

We are, we continue to see very attractive fire retardancy in a family of rare based compounds that have lot of our labs. And there's two customers in Europe that are trying to incorporate those materials into their products by the get, I there's really nothing to announce yet.

It's very much in development mode, but clearly it's out of the research Phase and into development. And we hope that later on this year or perhaps next year, we'll, we'll have something meaningful to talk about both on the fire retardancy, but also in, in a sister family of compounds that came out of again the same labs that have shown very attractive antiviral and antibacterial properties. That also again with partners, we're trying to incorporate into air filtration and surface disinfection and surface protection and all that on the like, but still very much a development project as well.

So there isn't really anything meaningful that you can notice on the bottom line, but clearly it's these families of products are very much in line with what we've always been trying to do in the company, which is sort of work on next generation products that perhaps didn't even exist or the, the notion that you could use retardants to enhance fire retardancy or confirm antiviral properties.

It wasn't something that was, normal in the business, but yet we've over the 30 years in existence, we built a company with an awful lot of really smart folks around. So I'm glad that we're at a point where we can think way outside the box and come up with products that had nothing to do with products that existed last year or the year before. So it's very much in the, culture of innovation that we've managed to bring together and instill in the company. And I think it will, it will pay very handsome dividends and in the next little while.

Frederic Bastien

Great. Yep.

Constantine Karayannopoulos

Thanks. Rahim has a comment.

Rahim Suleman

Yes, I was just going to comment, you comment on water treatment and I'll, just for color, their water treatment business volumes grew about 30% year-over-year. And it sounds a good statistic, but we actually have much higher aspirations for, for growth levels there. I think the water treatment business was more affected by COVID than others, just the nature of having to get into plants and actually work with the plants. So our volumes are actually on lagging indicator of what we see in that business. So, you know, we experienced 30% growth. I think that we continue to believe that we will see higher growth. But it's just been delayed a little bit than where it, we would've previously hoped.

Frederic Bastien

Great. Well, thank you both for the color.

Constantine Karayannopoulos



Thank you. And that does conclude the question-and-answer session. I'll now turn the conference back over to you for any additional or closing remarks.

Ali Mahdavi

Thank you again for joining us this morning on behalf of the Neo team. We look forward to speaking with you again during our first quarter, 2022 conference call. That concludes today's call.

Constantine Karayannopoulos

Thanks everybody.


Thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day.