Toronto-based Neo Performance Materials is moving to lock down another source of the rare-earth materials that sit deep inside the electric-vehicle supply chain. The company has signed a memorandum of understanding with Rainbow Rare Earths that would give Neo offtake rights to 40% of annual neodymium-praseodymium, or NdPr, oxide production from the Phalaborwa project in South Africa.
The agreement reaches beyond a simple purchase arrangement. Neo will contribute separation technology and technical expertise while gaining access to materials needed for high-performance permanent magnets. Those magnets are particularly important to efficient EV traction motors, making the deal closely connected to Neo’s rapidly expanding European magnet operation. The agreement is not yet a final binding offtake contract, but it shows how urgently manufacturers are working to build rare-earth supply chains outside the industry’s traditional centres.
The 40% Offtake Is the Centrepiece of a Much Broader Agreement
The headline figure is significant: Rainbow intends to give Neo rights to 40% of Phalaborwa’s annual production of separated NdPr oxide with purity above 99%. Neo would also receive offtake rights covering 65% of the project’s SEG+ product, a mixed carbonate containing samarium, europium, gadolinium and heavier rare earths including dysprosium and terbium. Pricing is expected to be determined on arm’s-length commercial terms using relevant rare-earth price indices rather than a fixed price announced today.
What Neo is providing in return helps explain why Rainbow selected it as more than simply a buyer. Neo will contribute design input and technical support for Phalaborwa’s final solvent-extraction separation circuit. Initial work using Rainbow’s rare-earth solution is already taking place at Neo’s facilities in Estonia, with a confirmatory integrated pilot-scale campaign planned in Johannesburg. That technical relationship gives Neo a role in shaping the process that is supposed to produce the material it may eventually purchase. Importantly, however, both companies say the detailed long-form agreements still need to be negotiated and executed.
Phalaborwa Is Not a Conventional Rare-Earth Mine
One of the more unusual features of the transaction is where the rare earths are supposed to come from. Phalaborwa is designed around legacy phosphogypsum stacks created as a by-product of historic fertilizer-related processing in South Africa. Rather than developing a new underground or open-pit mine, Rainbow plans to recover rare-earth elements from material that has already been extracted, processed and deposited above ground. That changes several of the early-stage engineering challenges normally associated with a greenfield mining project.
Rainbow reports a mineral resource of about 35 million tonnes grading 0.44% total rare-earth oxides in two phosphogypsum stacks. Its current project information estimates production of roughly 1,850 tonnes per year of separated NdPr oxide, alongside dysprosium, terbium and yttrium contained in its planned heavy-rare-earth product. A December 2024 interim economic study assigned the project a post-tax net present value of about US$611 million and a post-tax internal rate of return of 38%, although those figures remain study estimates rather than operating results. The new Neo work is intended to refine the separation stage before the project advances further.
NdPr Connects the Deal Directly to Electric-Vehicle Motors
Neodymium and praseodymium may receive far less attention than lithium, but they are central to many modern electric drivetrains. The two elements are major ingredients in neodymium-iron-boron permanent magnets, commonly called NdFeB magnets. These magnets can produce strong magnetic fields in a relatively compact package, which has made permanent-magnet synchronous motors attractive for vehicles where efficiency, weight and power density all matter.
The International Energy Agency has identified electric vehicles as one of the major sources of expanding demand for magnet rare earths. Its 2026 rare-earth analysis says demand for neodymium, praseodymium, dysprosium and terbium has doubled since 2015 and could grow by another third by 2030 under current policy settings. The link is already tangible for Neo. On September 14, just 10 days before announcing the Rainbow agreement, the company said its new European permanent-magnet plant had entered commercial production and was shipping sintered magnets to a Tier 1 EV traction-motor customer. The timing makes the Phalaborwa agreement especially relevant: Neo is trying to expand feedstock security at the same time its downstream automotive business moves into commercial production.
Dysprosium and Terbium Could Be Just as Strategically Important
NdPr attracts attention because it makes up a major portion of a typical high-performance rare-earth magnet, but Neo’s rights to 65% of Phalaborwa’s SEG+ output could prove strategically important as well. That material is expected to contain dysprosium and terbium, two heavy rare earths used in certain NdFeB magnet formulations. They can improve coercivity, helping magnets resist demagnetization when operating under demanding conditions and elevated temperatures.
That characteristic matters in vehicle traction systems, where heat management and motor performance are constant engineering concerns. A U.S. Department of Energy critical-materials assessment notes that dysprosium and terbium can improve the high-temperature performance of NdFeB magnets. Neo has already been building its capabilities on this part of the supply chain. In April 2026, the company commissioned a small-scale heavy-rare-earth solvent-extraction production line at its Silmet operation in Estonia and reported production of separated dysprosium and terbium process solutions. If Phalaborwa advances as intended, its SEG+ material could therefore fit into an existing processing strategy rather than requiring Neo to create an entirely new heavy-rare-earth business from scratch.
Neo Now Has a Commercial Magnet Plant Waiting for More Feedstock
The importance of the agreement is easier to understand after looking at what has changed at Neo during the past year. Its Narva permanent-magnet facility in Estonia is no longer merely a planned factory. Neo announced on September 14 that the operation had reached commercial production and delivered its first commercial volumes of sintered magnets to a Tier 1 EV traction-motor customer after completing development, sampling and automotive qualification work.
The initial phase has approximately 2,000 metric tonnes of annual nameplate capacity. Neo is already designing a second phase intended to increase that figure to about 5,000 tonnes per year, while the company says several additional magnet programs from Tier 1 motor manufacturers are moving toward production. Expanding a magnet factory, however, is only useful if enough qualified rare-earth material can reach it reliably. That is why upstream agreements such as Phalaborwa matter. Neo is attempting to connect sources of rare-earth feedstock with separation at Silmet and magnet production at Narva, creating a more integrated chain from raw material through to components destined for industrial and automotive customers.
Europe’s Supply Problem Makes Diversification More Than a Corporate Goal
Rare-earth sourcing has become a strategic industrial issue because production and processing remain unusually concentrated geographically. The IEA says magnet rare earths are among the most concentrated critical-mineral supply chains in the world. The vulnerability became especially visible after China imposed export controls on several heavy rare-earth elements and related products in April 2025. According to the IEA, falling exports subsequently caused supply difficulties for manufacturers in Europe, the United States and elsewhere, with some automotive operations forced to reduce utilization or temporarily interrupt production.
European policy has increasingly responded to that dependency. Under the EU Critical Raw Materials Act, the bloc has set 2030 benchmarks aimed at building domestic extraction, processing and recycling capacity while limiting dependence on any single non-EU country. The targets include processing capacity equivalent to at least 40% of annual EU consumption of strategic raw materials and a goal that no single third country supply more than 65% at a relevant processing stage. A South African resource feeding European separation and magnet manufacturing does not eliminate dependence by itself, but it fits directly into the broader diversification model Europe is trying to encourage.
The Toronto Connection Extends Into Canadian Project Financing
Neo’s newest rare-earth production chain is highly international. The company is headquartered in Toronto, Phalaborwa is located in South Africa, and much of the downstream processing and magnet manufacturing involved in this strategy is concentrated in Estonia. Yet Canada has played a financial role in building those European operations. Export Development Canada provided Neo with a credit facility of up to US$50 million to support construction and commissioning of the Narva sintered-magnet facility.
The project also received support through the European Union’s Just Transition Fund, illustrating how governments on both sides of the Atlantic have treated non-Chinese rare-earth magnet capacity as strategically important. The result is an unusual Canadian industrial story. Neo is not simply exporting Canadian-mined rare earths from a domestic facility. Instead, a Toronto-headquartered company is assembling pieces of a multinational supply network involving African feedstock, European separation technology, European magnet production and automotive customers. The Rainbow transaction adds another potential input to that network while giving Neo a direct technical role in preparing the material before commercial production even begins.
Several Major Steps Still Separate the MOU From Commercial Supply
Despite the strategic logic, Phalaborwa is not yet shipping NdPr oxide to Neo. The companies have signed an MOU and begun work on binding long-form agreements, meaning the proposed percentages and commercial relationship remain subject to final documentation. Rainbow also still has substantial project-development work ahead. Technical testing in Estonia must continue, and Neo is expected to help with a confirmatory integrated solvent-extraction pilot program in Johannesburg.
Rainbow now plans to publish a pre-feasibility study in the fourth quarter of 2026, incorporating progress on the separation process and updating project economics from its December 2024 interim study. A definitive feasibility study is targeted for the first half of 2027. Rainbow says the PFS should provide enough additional definition to advance financing and permitting workstreams. Those milestones will help determine whether the project’s predicted production volumes, economics and timetable remain realistic. Until then, the deal should be viewed as an important step toward securing future supply rather than evidence that Neo has already begun receiving Phalaborwa material.
What makes the agreement notable is how clearly it connects the stages of the rare-earth industry. A resource recovered from old industrial residue in South Africa could eventually move through specialized separation processes and into high-performance magnets manufactured in Estonia for electric motors. For Neo, that integration may prove as important as the 40% figure itself. The company is attempting to secure raw materials at the same moment its European magnet operation is moving from promise to commercial automotive production.
