CoTec Holdings delivers strong NdFeB Magnet Feasiblity Study

CoTec Holdings Corp. (TSXV: CTH; OTCQB: CTHCF) & 50% JV partner Mkango Resources Ltd. delivered an independent Feasibility Study (“FS”) for HyProMag USA, a state-of-the-art rare earth magnet recycling & manufacturing operation poised to be a game-changer for the security of domestic supply of neodymium iron boron (“NdFeB”) batteries.

Team members (bios on pages 18-20 of new corporate presentation) incl. CEO/Dir. Julian Treger, CFO Braam Jonker, COO John Singleton, Chairman Lucio Genovese, Dir. Tom Albanese, Dir. Sharon Fay, Dir. Erez Ichilov, Dir. Margot Naudie, Dir. Bob Harwood & VP of Finance & Corp. Development Eugene Hercun, should be proud of this FS.

CoTec will earn 60.3% of the economics from all U.S. operations, plus 20.6% of HyProMag profits in Europe, Japan, and elsewhere. The news comes on the heels of portfolio technology Ceibo partnering with Glencore to deploy Ceibo’s proprietary leaching technologies targeting much more effective extraction of Cu from low-grade sulfides.

Ceibo has been testing tailings from around the world for the past few years and is getting very encouraging results from most (but not all) types of mineral waste sites. But, enough about Ceibo, this article is about HyProMag USA!

Readers won’t be surprised that China dominates everything related to Rare Earth Elements (“REEs“) & REE magnets. With President-Elect Trump promising new tariffs on China and strained relations between the East & West, HyProMag USA’s success is fast becoming a matter of National Defense.

Last week China announced a complete and immediate ban on exporting tungsten, antimony, and a few other commodities to the U.S.. Yet, for China to match the ferocity of Trump’s rhetoric, it might be forced to take even bolder actions. REEs, and the permanent magnets that use them, are high on the list of critical exports China could use as leverage.

In addition to security of supply, recycling REE magnets with CoTec’s access to, and investment in, the disruptive HPMS technology is expected to use ~88% less energy than cradle-to-grave primary mining –> separation –> metal alloy –> magnet production.

From the press release, 

“Sintered NdFeB magnets will be produced using materials sourced domestically, contributing to the security of magnet supply and enabling economical, traceable, U.S. production of recycled NdFeB magnets supporting the critically important defense, automotive, aerospace, medical science, hyperscale data centers, robotics & energy transition industries.”

HMPS utilizes hydrogen gas to selectively separate & extract magnetic material, producing a magnet powder that can be directly sintered into new magnets with minimal processing. Other magnet recycling technologies have not solved the significant challenges of liberating magnets from end-of-life scrap streams.

HyProMag USA is a low-cost, low-energy, low-carbon footprint, sustainable business segment utilizing technology developed at the Univ. of Birmingham in the UK, underpinned by ~$100M of R&D funding to date. NdFeB magnets are being produced & successfully tested by potential strategic investors & customers.

The FS envisions a Texas “hub” and two pre-processing “spokes” in eastern & western States. Project economics are favorable with a post-tax NPV(7% real) of $262M and a real IRR of 23% at current NdFeB prices of around $55/kg.

The low all-in-sustaining cost (“AISC”) of $19.6/kg for NdFeB compares favorably to current prices. Upfront cap-ex is manageable at $125M. The ratio of post-tax real NPV to upfront cap-ex of 2.1x is attractive.

Pundits closely following REEs believe a bifurcated market could develop in which a premium is paid in the U.S. for conflict-free, tariff-free, domestically produced strategic materials like neodymium, praseodymium, dysprosium & terbium and for permanent magnets, and uranium.

At a long-term forecasted price of $94/kg, the NPV rises +92% to $503M,​ and the NPV/cap-ex ratio increases to a strong 4.0x. Note: {the $94/kg price is the “weighted average of prices for all NdFeB products sold, excluding residual scrap feed, derived from the latest rare earth oxide price forecasts”} –from Adamas Intelligence.

In addition to auto & aerospace/defense gigafactories, giant “hyperscale” data centers require substantial quantities of permament magnets. For HyProMag USA, production of 750 tonnes/yr. of recycled NdFeB magnets, + 291 tonnes of NdFeB co-products, ​results in total payable production of 1,041 tonnes/yr. over 40 years.

A third HPMS vessel could be added in Texas. If included in the FS it would have added $10s of millions in post-tax NPV for an incremental $7M in cap-ex.

CEO Julian Treger commented,

“The Detailed Engineering Design phase is expected to deliver cost savings & design improvements which should enhance the Project’s metrics even further. The Company is now focused on securing funding from the U.S. Government, financing, off-take, and feed supply. We are very excited the business can be used as a platform to create a market-leading position for low-cost, low-carbon magnet recycling.”

By the 2030s, HyProMag USA hopes to have up to 10% market share of domestic NdFeB magnets. Demand is growing rapidly, Adamas recently commented on humanoid robots based on Tesla’s Elon Musk saying there could be 10 billion walking the earth in 2040.

That would require 186 ​times today’s consumption of NdFeB magnets! Impossible, but 1% of Elon’s 10 billion (100M) would be a NdFeB magnet CAGR of +3.7% just from humanoids.

Tesla could secure a long-term supply of magnets for its Optimus robots & millions of EVs as CoTec’s proposed hub is ~220 miles from Tesla’s gigafactory in Austin, Texas. If humanoid hype disappoints, other high-tech/green energy innovations are coming. Demand for safe, secure, green recycled magnets produced in the U.S. could surprise to the upside.

There are two compelling takeaways from CoTec’s FS. First, the 2030s/40s have the potential to be extraordinary for HyProMag USA. CoTec’s team & consultants are “evaluating significant opportunities to optimize construction & operational efficiency, to reduce capital expenditure & operating costs, and expand production.”

Operating efficiencies, economies of scale & logistics should drive margins higher. As the number of hubs/spokes expands, the time/cost to design, permit & construct subsequent hubs/spokes will fall, globally. The EBITDA margin in the FS is already > 60%!

Parallel product & operational testing is ongoing at the Univ. of Birmingham pilot plant in conjunction with HyProMag commercial developments in the UK & Germany. Those commercial rollouts should de-risk the commissioning of HyProMag USA.

Active discussions on sourcing feed, and NdFeB magnet offtake are well underway. Revenue + EBITDA growth in this segment could be strong & predictable. The market likes high margins, growth & predictability. Royalty/streaming companies Wheaton Precious Metals & Franco-Nevada trade at ~18x revenue.

Second, there’s good potential for CoTec to receive low-cost loans, free-money grants, and/or tax deductions, abatements, credits, or exemptions at the Federal, State & Municipal levels.

Government funding/tax breaks + commercial/shareholder loans + pre-paid forward sales, tied to offtake agreements, could satisfy a meaningful portion of cap-ex, thereby minimizing equity dilution.

While far from a sure thing, winning grant(s) totaling $10s of millions, + financing 60%+ of cap-ex with debt, would substantially reduce the equity component. The U.S. is serious about securing long-term supplies of REEs, including NdFeB magnets, without touching China.

Funds are available for companies like CoTec, it’s a question of how much, how soon, and for which players. The Dept. of Defense [“DoD“] awarded $45M to MP Materials, and MP received a $60M tax credit through the Inflation Reduction Act [IRA] Section 48C. The DoD granted $288M to Lynas USA and $94M to E-VAC Magnetics, which also received a $112M IRA tax credit.

As important as these financial incentives are, also helpful is having government agencies facilitating (somewhat) CoTec’s efforts to obtain permits & approvals. Assuming HyProMag USA accounts for 40% of the Company’s enterprise value (market cap + debt – cash), it’s valued at under 10% of its 60% share of post-tax NPV.

That’s far too cheap for a Feasibility-stage project that could reach production in 2.5 years in a Tier-1 jurisdiction. JV partner Mkango’s share price is up +67% on heavy volume since the FS was announced. CoTec’s valuation remains compelling as HyProMag USA continues to be meaningfully de-risked and other business segments are advanced.

In slide #9 of the corporate presentation (shown above), one can see the tremendous blue-sky potential embedded in a sum-of-the-parts valuation of CoTec’s considerable assets. In my view, the Company is being treated as if funding its new projects will not be possible without massive equity dilution.

Yet, the Company has just 71.5M shares, management is mindful of its shareholders. And, HyProMag USA is well positioned for financial assistance in the form of loans + free-money grants. For years, CEO Treger & CFO Jonker have been making open-market purchases & participating in private placements at a level very few management teams can match.

Recently, director Sharen Fay & managing director Lucio Genovese have also been acquiring shares. Such strong conviction in the business model makes the story even more compelling.

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