Inside Neo’s rare earths factory

NARVA, Estonia — Europe’s big bet to break China’s rare earths dominance starts on Russia’s doorstep.

The continent’s largest rare-earth facility, situated on the very edge of NATO’s eastern flank, is ramping up magnet production as part of a regional push to reduce its import reliance on Beijing.

Developed by Canada’s Neo Performance Materials and opened in mid-September, the magnet plant sits in the small industrial city of Narva. This little-known border city is separated from Russia by the Narva River, which is an external frontier of both NATO and the European Union.

Analysts expect the facility to play an integral role in Europe’s plan to reduce its dependence on China, while warning that the region faces a long and difficult road ahead if it is to achieve its mineral strategy goals.

Magnets made from rare earths are essential components for the function of modern technology, such as electric vehicles, wind turbines, smartphones, medical equipment, artificial intelligence applications and precision weaponry.

Speaking to CNBC by video call, Neo CEO Rahim Suleman said the facility is on track to produce 2,000 metric tons of rare earth magnets this year, before scaling up to 5,000 tons and beyond as it seeks to keep pace with “an enormously quick-growing market.”

The European region currently imports nearly all of its rare earth magnets from China, although Suleman expects Neo’s Narva facility to be capable of fulfilling around 10% of that demand.

“Having said that, our view of that number is something like 20,000 tons. So, we’d have a lot more work to do, a lot more building to do because I think the customers have a real need to diversify their supply chains,” Suleman said.

“We’re not talking about independence from any jurisdiction. We’re just talking about creating robust and diverse supply chains to reduce concentration risk,” he added.

Neo has previously announced initial contracts with Schaeffler and Bosch, major auto suppliers to the likes of German auto giants Volkswagen and BMW.

Europe’s push to deliver on its resource security goals faces several obstacles. Analysts have cited issues including a funding shortfall, burdensome regulation, a limited and fragmented made-in-EU supply chain and relatively high production costs. All of these raise questions about the viability of the EU’s ambitious supply chain targets.

“Europe needs a big increase in rare earth magnet capacity to even come close to a diversified supply chain for its carmakers,” Caroline Messecar, an analyst at Fastmarkets, told CNBC by email.

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