Rare Earth Regulation, Markets and Supply/Demand Dynamics: Navigating Through the RE Fog


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Constantine Karayannopoulos, President & CEO of Neo Materials presents company overview, rare earths regulation, market dynamics and dispels some of the myths and misconceptions of the rare earths industry at Metal Pages' Rare Earths Conference Beijing Sept 2011

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Rare Earth Regulation, Markets and Supply/Demand Dynamics: Navigating Through the RE Fog

  1. 1. RARE EARTH REGULATION, MARKETS AND SUPPLY/DEMAND DYNAMICS: N avigating Through the FogConstantine KarayannopoulosPresident & Chief Executive OfficerNeo Material Technologies Inc Metal Pages Rare Earths 2011 Beijing, China September 14 to 17, 2011
  2. 2. Forward Looking InformationThis presentation contains statements that are not current or historical factual statementsthat may constitute forward-looking statements. These statements are based on certain factorsand assumptions, including, expected financial performance, business prospects, technologicaldevelopments, and development activities and like matters. While the Company considers thesefactors and assumptions to be reasonable, based on information currently available, they may proveto be incorrect. These statements involve risks and uncertainties, including but not limited tothe risk factors described in reporting documents filed by the Company. Actual results coulddiffer materially from those projected as a result of these risks and should not be relied upon asa prediction of future events. The Company undertakes no obligation to update any forward-lookingstatement to reflect events or circumstances after the date on which such statement is made, orto reflect the occurrence of unanticipated events, except as required by law. Estimates used in thispresentation are from Company sources. 2
  3. 3. At a Glance Listed: TSX-NEM Founded: 1993 Revenues: US$337.6M in 2010 (Q2 2011 US$216.1M) Employees: 1,375 Facilities and Canada, USA, Germany, UK, Japan, Korea, China, offices: Thailand, Singapore, Barbados Market cap: C$1.1B (basic) Shares 120M (basic) outstanding: 140.2M (fully diluted) 52-week range: C$3.83 – C$10.67 Recent share price: C$8.80 (September 8, 2011) 3
  4. 4. TTM Quarterly Financial Highlights US$ TTM Q2’11 Q1’11 Q4’10 Q3’10 Revenues $542.1M $216.1M $132.8M $101.9M $91.3M EBITDA $171.3M $84.5M $43.4M $21.4M $22.0M Net Income attributed to equity holders of NEM $114.6M $52.2M $31.9M $15.3M $15.2M EPS $0.96 $0.44 $0.27 $0.13 $0.13 Cash (Used)/Provided ($1.6M) ($11.1M) ($18.6M) $21.4M $6.7M by operations 4
  5. 5. A Bit of History PRC RE Prices 5
  6. 6. A Bit of History (Cont’d) PRC RE Prices 2010 6
  7. 7. A Bit of History (Cont’d) PRC RE Prices 2011 7
  8. 8. Rare Earth Export Quotas Est. ROW Year Total Quotas Neo JVs Consumption 2004 Total 65,609 6,479 55,000 2005 Total 65,609 6,479 46,000 2006 Total 61,821 6,479 50,000 2007 Total 59,643 6,479 53,000 1H 30,990 3,200 2H 16,458 1,981 2008 Total 47,448 5,181 56,000 1H 23,718 2,500 2H 26,427 3,790 2009 Total 50,145 6,290 25,000 1H 22,283 2,240 2H 7,976 493 2010 Total 30,259 2,733 52,500 1H 14,446 1,286 2H 15,738 1,310 2011 Total 30,184 2,596 58,000 1. Source of Est. ROW Consumption data is in TREO the Industrial Minerals Company of Australia Pty Ltd. (IMCOA). Est. ROW Consumption is in TREO while quotas are on a product basis. 2. The 2008 data shown above represents a 10 month allocation from March to December. MofCom moved to a calendar year from a 12 month year ending February. 3. Quotas were distributed once a year in 2007 and prior. 4. Quotas are on a product basis; Est. ROW Consumption is in TREO. 8
  9. 9. Current PRC Regulatory Environment • NDRC, MofCOM, MIIT, MLR, MEP, Customs • Environmental review of all miners, separators and processors • Production quota enforcement • Consolidation 9
  10. 10. Common Myths & Misconceptions MYTH 1: Low PRC Production Costs Due to Lax Environmental Regulations and Low Labour Costs FACTS • Regulations stricter than many western jurisdictions • Labour costs a small fraction of production costs • Relentless competition among domestic producers • By-product economics (Baotou) • Simple metallurgy (ionic clays) • Ce and La excess • RECl vs. HNO3 10
  11. 11. Common Myths & Misconceptions (Contd) MYTH 2: Rare Earths are irreplaceable, indispensable and their prices will continue to increase FACTS • Use is a function of value • Replaceability is a function of investment, effort and time • Balance is critical • Magnetic REs vs. the rest 11
  12. 12. The Current Scene • Lynas and Molycorp expect to be in production in 2011 and 2012 • Need for additional LRE capacity questionable • Need for greater HRE capacity inside and outside China • Current pricing environment critical for non-PRC production • PRC domestic market 60% of global demand 12
  13. 13. The 800-lb Gorilla • Thorium 13
  14. 14. The Near Term • Regulated Mining in China • More disciplined separation • Continuing shift of production to China as long as pricing differential remains • PRC will soon reach 70% of global demand and growing 14
  15. 15. 谢谢Thank you