OTCQB: IXRRF ASX: IXR
Tom Kerr, CFA: Hello everyone, my name is Tom Kerr. I'm a senior equity analyst at Zacks Small Cap Research, and welcome to another episode of our Fireside Chat program. Today we have the managing director of Ionic Rare Earths Limited (OTCQB: IXRRF, ASX: IXR), Tim Harrison. Ionic is an innovative critical minerals company engaged in the recycling and production of rare earth oxides. The company is based in Australia, but primary operations are in the UK, with development projects in South America and Africa. Welcome, Tim.
Tim Harrison: Hi Tom, good to be here.
TK: I'm going to start with a series of questions. Before we get into your operations and your future development plans, some people may not be familiar with critical minerals. Can you explain in layman's terms what rare earth elements and rare earth oxides are?
TH: Rare earth elements are the seeds of technology. These are elements that effectively enhance alloys and other compounds that we use in everyday life. Down the bottom of the periodic table, the lanthanide series has fourteen elements known as rare earths, and typically we also add yttrium into that classification. And these elements, when added with other metals, making alloys and other compounds, effectively enrich the performance of those materials.
Today, one of the biggest applications and biggest focused areas is neodymium iron boron magnets. These are extremely powerful magnets that make electric vehicles work, that make wind turbines work. They're used in data centers and hard drives. They're going to be increasingly used in the deployment of robotics and AI, and these are, as the Japanese term them, known as the seeds of technology.
TK: Got it. And before we get into your technology and how innovative and helpful it is, maybe talk about the industry and why it's called critical minerals, and maybe tie in the China situation we're in right now.
TH: Critical in that when we consider where the materials come from and their importance in everyday life, in the development of new industries, in the development and maintaining the technologies we use today, but innovating new technologies for tomorrow. These have extremely high potential applications and importance in industry, but they are under extremely difficult supply potential metrics. And when we think about critical minerals, typically these are elements that have a very high potential application in industry, but they're under significant constraint on supply. And if we think about rare earths, the fact of the matter is that today, when we consider permanent magnets that are used in so many applications, 94% of global magnet capacity emanates from China.
China has an extreme amount of influence on the flow of these molecules into Western supply chains. Last year, they implemented export restrictions on a number of heavy rare earth elements. Effectively, that's going to the highest potential restriction of material into Western supply chains, and that reverberated across a number of industries. We saw auto OEMs having to stop production because they simply couldn't get access to the magnets that they need to make electric vehicles work. We're going to see increasingly more scrutiny in this as the export restrictions come back into play between now and November and the potential application of these materials in a range of other more strategic deployments, especially around military and defense. I think we're in a very unique place in time where this material is strategically and more critically required than at any other point in time today.
TK: Got it. And you guys have a unique application or technology, although you do have some mining assets and partnerships, I believe your focus is going to be on recycling. Maybe explain how that works and what's going on at the Belfast operation, which I think is a demonstration plant in the UK.
TH: We've been in rare earths now for over seven years. We've got an upstream asset in Uganda, which is a 45% rich, heavy rare earth asset. It's fully permitted. But as we looked at the value chain, as we looked at how we monetize the product out of that mine into a Western supply chain, we saw that, effectively, there was a lack of processing capability from refining all the way through to magnet manufacturing and recycling in the West. That led us to Belfast and a technology at Queen's University Belfast, which we acquired in late 2021, and we finalized that acquisition in April of 2022. And for the last four years, the business has been prioritizing investment in the technology, in commercializing our rare earth separation and refining technology, but accelerating the application of that technology in recycling.
And why recycling? Well, we actually see recycling as the fastest way to get molecules into a Western supply chain. We see that as the mechanism that can start to backfill latent capacity on metals, alloys, and magnet capacity today, but also being able to support the flow of non-Chinese magnet rare earths into new magnet capacity being built today.
We're seeing about eight facilities under construction right now in the US. About $15 billion, $16 billion committed across the mines and magnet strategy in the US market, of which $8 billion is focused on the magnet manufacturing base. And as we look at that capacity coming online, that's going to generate a lot of waste materials that we are able, through our technology, to turn back into high-purity oxides that can be used to start the ramp-up of that magnet capacity in the US market.
TK: Got it. The Belfast operation is effectively working. The technology works. It's not experimental. Now I believe there are plans to really scale it up with a much larger commercial recycling facility in the same area. Maybe go over the size, the numbers, or the timing of the full-scale commercial plant.
TH: That's right, Tom. In Belfast, we've built a demonstration plant where we've been processing a range of different magnet feedstocks and swarf, which is the waste material from the production of new magnets, processing that material, turning that into new oxides, and building supply chains. And with those supply chains that we've been building, we've validated that earlier this year. We're the first company in the West to now turn that end-of-life material into recycled oxides, which has been validated by Ford in one of their electric motors manufactured in the UK. We're producing oxides and selling those into the US at the moment, working closely with a magnet company there called Advanced Magnet Labs, where they are developing magnets for the defense complex. We're out there; we've validated the technology; it works.
We're producing roughly at around about 10 tons per annum of separated oxides, and our product is going to the relationships that we're cultivating across the Western supply chain. We're looking at commercializing the technology in Belfast. And if we think about what we're doing, a demonstration plant and scaling up to a commercial plant, it's effectively a 40-fold increase. The commercial production in Belfast will look at processing 1,200 tons per annum of magnet feedstock, and as product, approximately 400 tons per annum of separated magnet rare earth oxides. That will include those heavy rare earths that the Chinese have implemented export restrictions on, specifically dysprosium and terbium oxide. But we can also extract a range of other heavy rare earths that we see in magnet feedstock from time to time, which are substitution elements that the Chinese have used.
To build that Belfast plant, approximately 85 million pounds, so a bit over 100 million US dollars. And we anticipate NPV will be over 500 million post-tax USD and a payback of around 2.4 years. We've got extremely positive economics. And if we think about that Belfast design, that has been designed in a way that we can then look to hyperscale the technology across the markets where we're looking to deploy that technology. We've identified potentially up to twenty plants that could go straight into the US manufacturing base to support this build-out that's underway. But in addition to that, we're looking at deploying the technology into Brazil and other parts of the world where the supply chain, resilience, and sovereignty are a requirement for any government that's looking for their own supply of material.
TK: Got it. I guess every country or region on Earth has scrap magnets or swarf, as you call it, so there's probably a lot of opportunities.
TH: Yeah, there's a huge inventory of material out there because we use magnets in everyday life, right? They're in our phones, they're in our refrigerators, they're in our air conditioners, they're in a range of other applications. They're used in existing internal combustion engine vehicles, as well as in electric motors that make electric windows work or power steering, for example. And these magnets are out there, right? They're out there, and it's a matter of harnessing that material back into the supply chain. Infrastructure exists for this material to be aggregated and to flow back into the recycling footprint, and we're working with a range of different parties on aggregating that material and funneling that into our business.
TK: Got it. And back to the large-scale commercial plant in Belfast, I understand there's a lot of support from the UK government and other sources. Do you expect to be fully funded, or where does that funding come from basically?
TH: Yeah, if we think about that 85 million pounds that we're looking at for the Belfast facility, we've already received a 12 million pound grant from the UK government via the Automotive Transformation Fund. There's a huge effort underway in the UK around moving the automotive manufacturing base away from internal combustion engines to EVs. And that supports a government initiative whereby they're effectively trying to move the population to an EV base. And we anticipate additional support. We're in discussions with other parts of the UK government and other vehicles on additional funding. And we anticipate a substantial amount of that 85 million pounds will come from additional mechanisms within the UK government which are designed to deliver sovereignty around critical minerals and regional growth.
I feel like we're smack bang in the middle of an extremely exciting period, given that forecast consumption of magnets in the UK from that move towards EV rollout, but also the UK being the biggest adopter of offshore wind sees something in the order of around about 12% of global magnet consumption being in the UK per annum by the end of this decade. They're a huge adopter. From a government perspective, they're doing a lot of work in rare earths, but specifically that permanent magnet supply chain, and working closely with industry to make sure that they have all of the building blocks in the UK to be as self-reliant as they possibly can.
TK: It's an important project for sure. It's getting a lot of recognition and support from a lot of different governments. You guys have a couple other irons in the fire. I think you mentioned the African mine, and you also have a joint venture in Brazil. Maybe touch on those, both the Brazil plans and the Uganda mine plans.
TH: Brazil is effectively an extension of the work that we're doing in the UK. In Brazil, we've got a joint venture with another ASX-listed company called Viridis Mining & Minerals. We're working with them on a 50/50 joint venture called Viridion. And the focus of Viridion is to deploy our technology on both recycling and the primary refining of the products that they'll produce from the Colossus mine, to be able to separate that into a range of magnets and heavy rare earths. And that represents a tremendously exciting growth proposition for the company in a market that I think has huge potential to be a potential source of primary supply of rare earths into both the North American and European market.
I think Brazil has the potential to be a China too, supplying an alternative source of upstream rare earths that ultimately go into advanced manufacturing in the Northern Hemisphere. And as that happens, we're able to also then further grow our recycling business because as more magnets get produced, that will actually lead to more swarf being produced, which ultimately means a greater recycling involvement with the supply chain. I think that Brazilian opportunity is a really exciting one. A hugely supportive government down there. They want the value chain to be developed in Brazil. The support that we've had through Viridion, and the Brazilian government stakeholders down there, has been tremendous so far.
Then we've got our upstream asset, which is the Makuutu project, as I mentioned earlier. It's 45% heavy rare earths in the product. It's a low-capital development that's fully mine-permitted. We have our environmental permits in place. And actually, last month we announced the strategic review of the asset and are looking at how we can potentially fast-track the development of Makuutu, potentially in a separate vehicle or doing something strategically that can unlock the value of the asset.
If we think about the future direction of the business, we're really focusing on the development of our technology, the development of the recycling footprint, and developing that downstream supply chain value addition. And the new Ionic will really focus on that downstream, midstream, and downstream applications, and now we're looking at the best way in which we can unlock value from a fully permitted ionic adsorption clay deposit in Uganda.
TK: There has to be a value there. Could that be a funding source?
TH: Yeah, look, since we announced that, we've obviously been exploring things internally and talking with a range of different mechanisms. Makuutu is part of Forge, so it's an acknowledged project that's incredibly important to Western governments, so we see a strategic value in the asset. But yes, potentially there is value that can be unlocked from that asset. We obviously want to see Makuutu into production. We want to make sure that Makuutu has the resources and the focus to be able to do so. But yes, potentially there is a significant value unlock that comes from the Makuutu asset; that's what we're looking to try and identify, the best return for our shareholders right now.
TK: Great. Speaking of funding, I think at the end of the June 30th period, you had about 3.5 million Australian dollars in cash. And after that, you did a capital raise for, I think, another 8 million. Maybe talk about that as well as other funding sources; does that get you to the final investment decision, and so on.
TH: Yeah, where we are right now, Tom, yes, we just completed the raise here in Australia. That gives us a runway now to keep making good progress with our Belfast facility. We're in the process now of engaging those funding vehicles available to us in the UK and strategics, building together the final capital stack for the Belfast facility, and hopefully we're in a position to announce the outcome of that very shortly.
TK: Got it. One more business question, and you touched on the US opportunities briefly. Is there anything you can discuss about that? Who have you met with? What are the opportunities there? And obviously the US should be a huge opportunity if done properly.
TH: I think, Tom, if we look at what's happened in the US over the course of the last twelve, fourteen months, there's been a huge amount of activity as the US has really taken the lead on developing rare earth supply chains outside of China, right? Huge investment across the value chain. As I mentioned earlier, somewhere in the order of eight new magnet facilities are being announced and being funded, catalytic capital coming from the US government, which is then given the support from other investors to invest in those businesses, and we've seen a dramatic re-rating of those businesses.
Where we see growth for our technology is working closely with those new magnet facilities on being able to take the waste materials from the production of magnets. Because what needs to be understood is that when you start out making magnets, if you consider starting with a hundred units of rare earth oxides. By the time those oxides are turned into metals, then alloys, block magnets, and then finally the finished magnet, a hundred units here end up as somewhere between 60-75 units as a finished magnet going out the front door to customers. There's a tremendous amount of recirculating load of waste materials that get generated in the production of such magnets.
Where we come in is we turn that material, and we're able to recycle that, working in collaboration with the magnet maker, to turn that back into oxides, which effectively makes sure that they become as efficient as possible with these strategic raw materials that are increasingly hard to find. We see huge growth in the US market. We've got an MOU with a US company called US Strategic Metals. We've been working through a range of different scenarios with them. We've got a technology collaboration agreement with another US company called Nth Cycle.
We're working with a range of different parties in addition to magnet manufacturers on the rollout of our technology, plus working closely with OEMs and companies across high-value, high-margin applications that need rare earths in their products. We've got a lot of discussions underway with various parties in the US. Belfast is obviously critical to that, but also in its own right, looking now at the expansion of the technology into the US market.
TK: Got it. Well, we're almost out of time. Maybe give us some closing comments, or is there anything we missed, or maybe just give your one- or two-minute investment thesis if we haven't missed anything.
TH: Yeah, look, Tom, I think what I would suggest investors draw their attention to is really the escalation that happens between now and November, where rare earths, but specifically heavy rare earths, become even more in focus because those export restrictions effectively come into force in November of this year. We're going to see increasing supply constraints on specifically heavy rare earths. We see a completely bifurcated market now for heavy rare earths in the West relative to what's happening in China.
If we look at the latest pricing on dysprosium and terbium, dysprosium is now trading at over $2,000 a kilo, which is tenfold the price of that material in China. We are seeing a massive bifurcation of markets. I think this is a once-in-a-generation opportunity, and we see huge growth that's about to happen across the industry, especially for companies like ours with unique technology that can produce those high-value materials with a very low capital footprint and very quick to deploy. I think it's a very exciting time right now, Tom.
TK: It's a great story, and I really appreciate the time today. To read all of our reports, investors can go to scr.zacks.com as well as our social media channels. And if you want more specific information on the company, you can go to their website at ionicre.com. There's a lot of great information there, a lot of details for investors to read, and it's a great story. Thank
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