Molycorp Inc.’s (NYSE:MCP) $1.3 billion acquisition of a Canadian rare earth producer validates the vertical integration model for the rare earth sector, says the CEO of IBC Advanced Alloys (TSX-V:IB).
Molycorp is buying Toronto-based Neo Material Technologies (TSX:NEM) to create a vertically integrated company that IBC CEO Anthony Dutton described as “an excellent marriage.”
“Molycorp has a significant deposit, but they don’t have a huge amount of downstream capacity in terms of manufacturing, refining and separation and, most importantly, the customer relationships, and that’s what Neo Materials has, so it’s a very complementary acquisition,” he said.
Moreover, he thinks the move heralds similar “marriages” across North America.
“The rare earth sector is going to be a consolidating sector over the next two to five years,” he said.
“I expect to see similar types of transactions where you have downstream assets marrying upstream assets.”
Neo Material produces and processes rare earths. One of its divisions, Magnquench, produces materials used in bonded magnets, which are used in sensors and micro-motors. It also makes materials used in LED, wireless and solar industries.
The transaction expands Molycorp’s rare metals portfolio to include gallium, rhenium, and indium, which are used in advanced electronics, photovoltaic, aerospace, catalytic converters and lighting industries.
It also gives Molycorp access to Neo’s expertise in development, processing, and distribution of technically advanced rare earth products. That in turn will give the company access to China, which consumes 70% of the world’s rare earth products.
“This transaction will link two unique companies – one with a high-quality resource and the other with world-class rare-earth product design and processing capabilities,” said Molycorp CEO Mark A. Smith,
“With this combination, Molycorp will be in a unique position to enhance our time to market and provide new global customer segments with rare earth metals, oxides, and alloy powders that are unmatched today.”
Dutton said marriage between Molycorp and Neo validates his own company’s vertical integration model.
“IBC has long subscribed to this model,” said Dutton, whose company specializes in making copper alloys and high performance beryllium aluminum castings. “We have mineral assets, we have processing, and we have four manufacturing facilities.”
He added the acquisition is encouraging for the Canadian rare earth juniors, if it is followed by more such acquisitions.
“There are quite a few Canadian companies who have what could be some pretty interesting deposits,” he said. “But they don’t have any downstream capacity. So all they’re going to do is mine their product and ship it off for China.”
