Toronto-based Neo Performance Materials is tightening its grip on one of the most strategically sensitive links in the automotive supply chain: the heavy rare earths needed to make powerful permanent magnets.
On August 31, Neo announced a binding term sheet with French rare earth specialist Carester that is expected to give the Canadian company access to separated dysprosium and terbium oxides from Carester’s upcoming Caremag facility in France. Those materials will support Neo’s sintered magnet operation in Narva, Estonia, where automotive programs are moving toward commercial production. The arrangement also creates a recycling loop for manufacturing scrap and ties Carester into Neo’s existing European separation capacity.
For automakers trying to reduce their exposure to China-dominated magnet supply chains, the agreement lands at an unusually important moment.
The Deal Targets Two of the Hardest Rare Earths to Secure
Neo’s agreement with Carester centres on dysprosium and terbium, two heavy rare earth elements used in high-performance magnets. Under the binding term sheet, Neo is expected to receive separated oxides produced at Carester’s Caremag recycling and separation facility in Lacq, France. Neo said the arrangement is multi-year and designed to provide part of the heavy rare earth supply required by its European sintered magnet business.
There is an important contractual distinction. Neo has announced a binding term sheet rather than saying every definitive agreement associated with the partnership has already been executed. Its own disclosure lists negotiation and execution of definitive agreements among the matters that remain forward-looking. Even so, the structure is more substantial than a simple memorandum of understanding. Neo is pairing future supply with recycling and processing arrangements, effectively connecting facilities in France and Estonia into the same industrial network.
Why Dysprosium and Terbium Matter to Automotive Magnets
A modern electric motor can contain only a modest amount of rare earth material, yet losing access to that material can stop the entire production line. High-performance neodymium-iron-boron magnets are primarily based on neodymium and praseodymium, with dysprosium and terbium often added to improve performance, particularly where motors must operate reliably under demanding temperatures.
That helps explain why the automotive sector watches these elements so closely. The International Energy Agency says permanent magnets represent roughly 95% of rare earth consumption by value, and magnet-related demand for neodymium, praseodymium, dysprosium and terbium has doubled since 2015. The IEA expects demand for those magnet rare earths to increase by more than 30% by 2030 under current policy settings. Electric vehicles, industrial motors, wind turbines, defence equipment and rapidly expanding data-centre infrastructure are all competing for parts of the same supply chain.
Neo’s Narva Magnet Plant Gives the Agreement Immediate Relevance
The Carester partnership is not being built around a hypothetical future magnet factory. Neo has already constructed its sintered permanent magnet facility in Narva, Estonia, and has been producing qualification samples for automotive customers while preparing commercial programs. The first phase was designed for approximately 2,000 metric tonnes of annual nameplate capacity.
Neo has also begun purchasing equipment for an expansion that would lift capacity to roughly 5,000 tonnes a year. The company said in its second-quarter update that two to three customer programs remained on track to enter commercial production during 2026. An earlier automotive contract awarded to Neo represented peak-year volumes equivalent to about 35% of the original first-phase capacity, with revenues expected from the second half of 2026 through 2033. Securing heavy rare earth inputs therefore matters not just for future expansion but for customer programs already moving toward production.
Magnet Scrap Will Be Fed Back Into the Supply Chain
One of the more significant elements of the Carester agreement is what happens after Neo begins cutting and finishing magnets. The manufacturing process creates material known as magnet swarf. Rather than treating that residue simply as waste, Neo plans to send it to Carester for recycling.
Carester will recover neodymium-praseodymium, dysprosium and terbium oxides from that scrap, with the recovered materials flowing back into Neo’s supply network. That creates the beginnings of a closed-loop model in which valuable rare earths circulate through production instead of being lost after one manufacturing cycle. Recycling will not eliminate the need for new mined material, particularly as magnet demand grows, but it can reduce waste and improve resilience. The approach also mirrors broader European policy goals: the European Union wants substantially more strategic raw material recycling capacity inside the bloc by 2030 instead of relying overwhelmingly on imported processed material.
Neo’s Silmet Operation Adds Another Piece to the Network
Neo brings something unusual to the partnership: an existing rare earth separation operation in Europe. Its Silmet facility in Estonia is one of a relatively small number of commercial European plants capable of processing rare earth feedstocks. Under the Carester arrangement, Silmet is expected to process mixed rare earth carbonate supplied by Carester through a tolling structure.
Neo would retain the light rare earth output, while heavy rare earth material would be returned to Carester. The arrangement effectively lets both companies use infrastructure the other side needs. Neo also commissioned a small-scale heavy rare earth solvent-extraction line at Silmet in April 2026. The company reported that the system had reached nameplate capacity and successfully produced separated dysprosium and terbium process solutions from mixed rare earth carbonate. For customers, the important point is that the proposed supply chain covers more than magnet assembly; it reaches into separation, recycling and feedstock processing.
China’s Dominance Explains Why Automakers Are Nervous
China remains extraordinarily influential throughout the magnet supply chain. According to the IEA, China accounted for about 60% of global mining of the key magnet rare earths in 2024, but its position became much stronger farther downstream. It controlled roughly 91% of separation and refining and about 94% of sintered permanent magnet manufacturing.
The consequences became visible after China introduced export controls on seven heavy rare earth elements and related products in April 2025. Shipments dropped sharply, and manufacturers in the United States and Europe struggled to secure magnets. The IEA says some automakers reduced plant utilization or temporarily halted production. European prices for selected controlled rare earths at one point rose to multiples of Chinese domestic levels. Reuters reported in 2025 that automakers were racing to build inventories and alternative supply arrangements as licensing requirements threatened future availability. Neo’s deal is therefore addressing a disruption manufacturers have already experienced, rather than merely preparing for a theoretical geopolitical risk.
Caremag Could Become a Meaningful European Source
Carester’s Caremag facility is designed to do more than recycle small batches of discarded magnets. The project in Lacq is scheduled for commissioning in late 2026 and, when fully ramped, is expected to produce about 800 tonnes annually of neodymium-praseodymium oxide, 500 tonnes of dysprosium oxide and 100 tonnes of terbium oxide.
Those last two figures are particularly important because heavy rare earth separation capacity outside China remains scarce. Carester and its investors have said the planned dysprosium and terbium production could represent roughly 15% of current global output of those magnetic heavy rare earth oxides. USA Rare Earth separately acquired a strategic minority position in Carester in 2026, illustrating how aggressively Western companies are competing for access to the same emerging European infrastructure. Neo’s arrangement gives the Toronto company another route into that ecosystem while tying Caremag production directly to a magnet manufacturer already supplying automotive qualification programs.
Europe Is Using Policy to Pull the Supply Chain Closer to Home
Neo’s strategy fits closely with the European Union’s Critical Raw Materials Act. By 2030, the EU wants domestic capacity equal to at least 10% of annual strategic raw-material consumption in extraction, 40% in processing and 25% in recycling. It also wants no more than 65% of annual consumption of a strategic raw material at a relevant processing stage to come from any single third country.
Rare earth magnets illustrate why those targets exist. Europe has major automotive, aerospace, wind-energy and advanced-manufacturing industries, yet historically much of the critical material processing required to supply them has occurred elsewhere. Neo’s emerging chain crosses several European jurisdictions: Carester would handle heavy rare earth separation and recycling in France, while Neo processes material and manufactures magnets in Estonia. That does not make Europe self-sufficient, but it creates an industrial route that is materially less dependent on a single Asian supply chain.
Strong Rare Earth Pricing Is Already Showing Up in Neo’s Results
The strategic attention surrounding rare earths has coincided with a sharp improvement in Neo’s financial performance. The company reported second-quarter 2026 revenue of approximately US$205.7 million, up from US$114.7 million a year earlier. Adjusted EBITDA reached US$57 million, more than triple the roughly US$19 million recorded in the second quarter of 2025.
Neo subsequently said it expected full-year adjusted EBITDA near the high end of its US$140 million to US$150 million guidance range. Management attributed the stronger results to a combination of volume growth, operational execution and favourable pricing across its critical-materials portfolio. Magnequench, the division housing Neo’s magnet businesses, generated second-quarter adjusted EBITDA of US$10.5 million, up 39% year over year. Those figures do not mean every part of Neo’s expansion is risk-free, but they give the company financial momentum while it scales its European magnet manufacturing and separation infrastructure.
The Next Test Is Turning Supply Security Into Automotive Scale
For Neo, obtaining access to dysprosium and terbium is only one step. Caremag still has to complete commissioning and ramp production, Neo must finalize the commercial arrangements contemplated by its binding term sheet, and its Narva facility must successfully transition automotive qualification programs into sustained high-volume manufacturing. Automotive customers are famously demanding about consistency, quality and traceability, particularly for components buried deep inside electric drivetrains.
The broader industry trend nevertheless favours suppliers that can demonstrate where their materials come from and how securely they can be processed. The IEA expects demand for magnet rare earths to keep climbing while warning that supply diversification remains slow. Neo is attempting to solve that problem by connecting separation, recycling and magnet manufacturing inside Europe. If the Carester partnership performs as planned, a Toronto-headquartered company could end up controlling an increasingly important route for turning European and allied rare earth feedstock into magnets destined for electric and hybrid vehicles.
