Neo plans to develop European hub for rare earth magnets in Estonia

By Eric Onstad

LONDON (Reuters) - Canada's Neo Performance Materials announced plans on Wednesday to expand its rare earths operations in Estonia to produce super-strong magnets for electric vehicles (EVs), counting on European Union funding to make it viable.

The EU wants to develop domestic output of rare earth magnets - key for both EVs and wind turbines - to help meet targets for cutting carbon emissions and for reducing reliance on China.

China now supplies 95% of the EU's permanent magnets, which are also important for the defence sector and high-tech products such as robots.

Estonia gave its backing for the plans by Neo, which already has a rare earth separation plant in Sillamäe, to develop a European hub there to produce rare earth alloys and magnets.

Automakers and their suppliers, which are ramping up EV output in coming years, have already said they will buy magnets from the proposed factory, Chief Executive Constantine Karayannopoulos told Reuters.

"The marching orders given by the automotive industry is that by 2025 they need to have a supply of magnets for their drivetrains coming from Europe," he said in an interview.

The first stage would aim to produce about 1,000 tonnes a year of permanent magnets, with commercial output launching by 2024, while a second stage would boost output to 5,000 tonnes or more.

The initial cost would be $40 million-$50 million in capital and operating costs and Neo is looking for 15 million-20 million euros ($17 million-$23 million) in EU funding, Karayannopoulos said. "It would make the difference between making the funding decision for ourselves versus not."

Neo is applying for EU funding through the bloc's Just Transition Fund, which helps members that will be negatively hit by the green transition. Baltic state Estonia is one of the largest per capita greenhouse gas emitters in the EU because of oil shale it uses for power generation.

Estonian Minister for Entrepreneurship Andres Sutt welcomed Neo's plans, saying in a statement they would create new jobs and cut life-cycle emissions.

($1 = 0.8838 euros)

(Reporting by Eric Onstad; Editing by Edmund Blair)