Neometals (NMT) - European Investors Lining Up for Piece of Aussie Star

Neometals is a mineral and advanced material company involved in the recycling, and production of high-grade lithium and vanadium. The company was founded in 2001 and is headquartered in Australia. Alphamet Management Pty. Ltd, Mount Finnerty Pty. Ltd., Reed Advanced Material Pty. Ltd., Mt. Edwards Lithium Pty. Ltd., Barrambie Gas Pty Ltd., and Inneovation Pty. Ltd (formerly Australian Vanadium Exploration Pty. Ltd.), are the companies' subsidiaries.

Matt Gordon caught up with Chris Reed, CEO and Managing Director, Neometals. He started his career in the mining industry in 1990 and co-founded Reed Resources in 2001. He is a member of the AusIMM (Australasian Institute of Mining and Metallurgy) and former Vice President of the Association of Mining & Exploration Companies. His educational background includes a Bachelor of Commerce degree from the University of Notre Dame, WA School of Mines. 

Company Overview

Neometals is an innovative mineral and advanced materials company focused on a sustainable future. The company seeks to de-risk and develop long-life projects with strong integrated partnerships throughout the value chain. The company was founded in 2001 and is headquartered in Australia. The company is listed on the Australian Stock Exchange (ASX: NMT), and the London Stock Exchange (LSE: NMT). 

Neometals is a project developer currently working on assets in the green battery materials space using in-house technologies. The company is currently on an awareness tour generating interest around its assets. This tour has enabled the company to reconnect with brokers, former institutions, and investment bankers.  The company currently has $120M in cash and investment with zero debt. The company isn’t looking to raise additional capital at the moment. 

Moving Towards A Green Economy

In recent times, investments have seen a shift towards projects that are focused on ESG (Environmental, Social, and Governance) and sustainability. While the competition was focused on upstream mining, Neometals moved into recycling on the other end of the supply curve. Neometals has received highly positive market reception in recent times. 

The company has multiple projects in its asset portfolio. However, the company is currently focused on the lithium battery recycling process that it is commercialising with SMS, one of Germany’s largest plant builders. The company is looking to open its first commercial operation in Hilchenbach, Germany next week. Notably, Germany is the heartland of the European battery-making sphere, serving as the biggest part of the company’s underwriting and value. 

Partnership with Mercedes

Mercedes recently announced that it has picked Neometals as a technology partner for its recycling pursuits. Interestingly, both companies have been in discussions for over a year. The due diligence has been done and Neometals has run demonstration trials from Mercedes’ batteries. The former recently concluded the third demonstration trial. The company is ramping up the shredder production capacity to a 10t limit. This shredder has been commissioned and the company is currently awaiting the final permit. According to Neometals, Mercedes is very diligent in its work and is probably the best third-party endorsement that a company can have from an OEM (Original Equipment Manufacturer). 

Neometals is looking to finalise the agreement with Mercedes, where the former would supply the latter with a plant. A 10t integrated plant has the capacity to process around 2,000t cells. As Mercedes has the obligation to recycle, it is looking to understand each and every part of the economics in the supply chain. Neometals will get paid for supplying Mercedes with the plant. Following this, the two companies would enter a 5 year R&D (Research and Development) collaboration on Mercedes’ development of new cells, it's recycling, and new battery chemistry. During this time, the company will have its staff embedded at Mercedes-Benz. 

The Battery Recycling Landscape

The EU ministers have now agreed on battery regulations. These norms are expected to have a swift path through the EU Parliament, following which, the regulations are expected to start by 2025. From a recycling perspective, the contribution of a meaningful amount of supply of new batteries is expected to happen in the next decade. 

From an investor and stakeholders’ point of view, companies would need to focus on decarbonizing cars, battery metals, and other components of the supply chain from an ESG perspective. Interestingly, in order to be a part of the sustainability index, companies would need to reach 85% recycling rates, which are higher than the EU battery regulations. 

Neometals recycles batteries to recover battery-grade quantities of ore. The largest products recovered by value are nickel and cobalt. These 2 metals make up around 80% of the basket of goods. Battery recycling also provides lithium and copper recoveries. Using in-house technology, the company can attain higher metal recoveries while maintaining its position at the bottom end of the cost curve. 

Neometals has a flexible business model. In fact, the company has 3 business models. Although it currently has a limited recycling capacity, the company has been fortunate to get compensated for it. In the future, the company expects to source additional recyclable material for the feedstock from end-of-life consumer electronics, and bigger volumes of production scrap from Giga factories. Based on conservative estimates, it is assumed that 10% of the material is turned to scrap. However, cell-makes have never made batteries on such a scale. In fact, it took 5 years for Panasonic to get the scrap rates in the Giga factory under 20%. Although the volumes are large, the end-of-life scrap can be around 10%. Neometals is looking at the mid-decade, where the last decade’s production starts to come back, leading to an exponential growth in the volume. In order to get these end-of-life products, the company plans to share the economics on a smaller scale.

Ongoing Operations 

Neometals is providing Mercedes with a royalty-free licence for the 10t/day plant. For any other volumes, the company would need to agree to the commercial terms. Notably, Mercedes has produced about 2.5M cars, and the company is currently transitioning towards being an EV manufacturer. If a car has a 400kg battery back, 2.5M cars with a 1Mt supply comes out to a 3,300t/day operation. Neometals has built its business around transitioning from disposal fees as a principal to joint ventures with parties. In order to achieve the lowest cost of recycling for really large volumes, Mercedes would need to buy plants off Neometals and the company would issue operating licences for the same. Following this, Mercedes will pay royalties. 

Neometals’ Stelco transition royalty is a 10% gross revenue royalty. In case the company exercises its option to buy into the special purpose vehicle with Stelco, the royalty drops to 0%. However, it is important to note that Neometals is a 50% equity holder in Stelco. The company has designed its business with a focus on increasing volumes. As part of this strategy, the company is working on the 10t/day shredding plant at Hilchenback, a 10t/day integrated plant for Mercedes, and a 50t integrated plant potentially for Stelco. 

At the same time, the company is working on early-stage studies and PFS (Pre Feasibility Studies) for a 500t/day plant. This plant will account for the 90% non-scrap batteries that are acquired when an electric vehicle is at the end of its life cycle, after 8-10 years of operation. Neometals has developed its own flow sheet and hydro-metallurgical process which has been shared with Mercedes. 

The total installed capacity for battery recycling in Europe currently stands at under 70,000t. It is projected that by the year 2025, Europe would need a 335,000t capacity. Neometals plans to work as a developer for this service by way of partnerships with SMS and Mercedes. The company is open to exploring the various avenues in the battery recycling market to ensure that it is an integral part of the growing demand. 

Neometals’ manufacturing headquarters is based in Hilchenbach with 4,500 people. The practical limit for building recycling plants is the number of plants the company can build at any one point in time.  In the shareholders’ agreement, SMS has the first right to build all plants. However, Neometals is not precluded from using third-party constructors. SMS is a 50% shareholder in Neometals. 

The company is looking to commence operations next quarter. Currently, it is awaiting a bench permit, a local German permit that would enable the company to operate a 10t/day plant. Once this plant is in operation, the company will ramp up in order to gain more market visibility. The company is looking to showcase its product through its engineering cost studies and feasibility studies. It is also working towards a 50t plant for SMS. This is an opportunity for Neometals to deploy several small plants out in the market over a period of 5-10 years. Following this, the company is looking to scale up operations by a factor of 10 to process the end-of-life products in the future. 

Based on last year’s PFS (Preliminary Feasibility Study), a 50t integrated plant would have a CapEx (Capital Expenditure) of $165M, where 20% of the fund would be in the front end, while the other 80% would be in the back end. The operating costs for this plant would be under $2,000/t, 10% in the front end, and 90% in the back end. The project’s NPV (Net Present Value) is estimated to be two-thirds in the front and one-third in the back end. As a result, the revenue generation capability of the project depends on the material being fed. 

For instance, laptop batteries are worth under $20,000/t, for a $2,000 OpEx (Operational Expenditure). Car batteries do not contain as much cobalt, but they contain more nickel. Based on last week’s nickel price on NMC 811, a cathode material that contains 15% nickel, 15% copper, 2% cobalt, and 2% lithium, the per-ton value recovered is about $8,000, offering a very good margin. In EV battery recycling, nickel is the largest product by value at 60%. It is important to note that these estimations are based on the 2021 PFS study. The company plans to update the numbers in the June quarter. 

Sourcing a large number of batteries, taking off all the cost along with cobalt credits, and dividing it by nickel tons can make the company the new lowest-cost nickel producer in the world, while the ore body continues to grow. The company is looking to build newer and bigger capacity plans. The plant building is being handled by SMS in favour of an annuity-style income. SMS is focused on building the plants while Neometals is looking to move back into R&D to ensure that its technology is up-to-date with solid-state electrolytes, LFP (Lithium iron phosphate battery), direct recycling, and other upcoming technologies. 

Although batteries have the same components, OEMs generally look for 3 major types of battery makeups, namely prismatic, pouch, and cylindrical. These batteries come in various mixtures such as choice of anodes, cathodes, and more. Neometals anticipates that these requirements will change over time. The company has designed the process to ensure that no noxious gases are released into the atmosphere. The company uses ammonia instead of sodium as a Ph adjuster. The biggest product out of the plant is an ammonium sulphate solution, a fertilizer. In fact, this process led the company to be nominated for the German National Sustainability Awards, making it to the finals. Interestingly, the resultant ammonium sulphate solution is then sold to German farmers. 

The Vanadium Business

Neometals is currently earning in from the slag with a partner into a business. This will be underpinned by a 2Mt supply contract from SAB, a steelmaking company. The company has developed a very green process where the material is digested into very strong soda water, a mixture of water and sodium carbonate. The carbon dioxide is captured from local emissions and mixed into the solution along with vanadium. Next, the solution is rendered into a tailings product that is chemically inert. This solution is then sequestered into the carbon to produce vanadium of the highest purity. 

The company ran 24-day pilot operations on the 3 dumps from SSAB. Here, the company was able to achieve 75% recoveries. The company aimed at an inert tailings product and in order to attain this, it could not use any acids. The resultant product is 99.8% pure vanadium, which is ideal for lithium-vanadium cathodes and anodes, VRFB (Vanadium Redox Flow Battery) electrolytes, and for titanium-vanadium alloys. Furthermore, this high-purity vanadium is also great for steelmaking, which is a highly liquid market.

Neometals has been looking at potential collaboration with third parties for vanadium from a time when the market prices were half of the current numbers. Both lithium and vanadium are crucial for energy storage. Notably, Neometals has been able to recover the solvent that is used for vanadium extraction. The pentoxide is converted from a sulphate form to an oxide form and is then sold as V₂O₅ (Vanadium Pentoxide). Given the vanadium’s purity, the company can directly sell it as an electrolyte material. To develop a VFRB battery, a pure solution is required in the right form with a 2:3 solution, a valence, and a 4:5 solution. The credit for the invention of VFRBs goes to Professor Maria Skyllas-Kazacos from Sydney, Australia. 

Targets 2022 and Beyond

Neometals is looking at an investment decision for the battery recycling plant in the September quarter. The company has till the end of December to consider the investment decision. Around the same time, the company is looking to conclude the project’s Feasibility Study. The company has a 6-month window to make an FID (Final Investment Decision) which will trigger the purchase of 700,000t of the slag material. This quantity would be sufficient for the company to have a reserve to underpin the ability to procure finance. 

With the SSAB stockpiles, the current reserves stand at over 2Mt, and SSAB continues to add to the reserves. Neometals has also entered an MOU (Memorandum of Understanding) with H2 Green Steel, which is looking to build a very large green steel plant using Swedish products, for 4Mt. Neometals has a growth horizon that will enable it to become one of the world’s largest producers of high purity vanadium. Since the company can capture carbon dioxide during the process and sequester it in the tails, its carbon footprint would be practically nil. 

Vanadium has a wide variety of use cases across multiple industries. Notably, 85% of the produced vanadium is used in steel. In certain use cases, there’s a cap on the ferroniobium sustainability. VRFB batteries can only be made with vanadium. Also, the lithium vanadium cathodes and anodes are known to have the highest specific energy according to the periodic table, while the titanium-vanadium alloys are used in aerospace work and are non-substitutable.

Neometals is implementing the same strategy as its other assets, going through the various stages of the project with discipline and then targeting the customer base that would offer the highest value and use of the company’s products. 

The Widgie Nickel Project

When Neometals acquired the Widgie Nickel Project, the nickel market price was about $12,500/t. In 2021, the company made the decision to merge the asset and return it back to the shareholders at $18,000/t. 

The Barrambie Vanadium-Titanium Project

For the Barrambie project, Neometals has approached over 40 people. It has different teams working on each of its projects. Barrambie is a legacy asset for the company that isn’t generating carbon yet. When it comes to lithium or vanadium battery recycling, it is in fact upcycling, where the source material is used to develop a higher-value product. The company provides an environmental service and infrastructure as a service for a world that is increasingly shifting towards green, sustainable technologies. 

For the lithium battery market, the company is providing either a disposal service with a customer co-ownership or a service to build plants using licensed technologies. As a result, the company successfully crossed a couple of thematics where the tailwinds were fantastic. 

The company recently got listed in the UK. It is looking to get the green mark from the London Stock Exchange by making more than 50% of its income from green, sustainable businesses. This would open up the company to the lower-cost pools of equity and debt from ESG-related funds. It has the technologies and the partnerships with companies including Mercedes, Stelco, and SMS that allow for organic growth. The company isn’t looking for an M&A (Mergers and Acquisitions) in the near future.

To find out more, go to the Neometals website