Neo Performance Materials, that's ticker N-E-O. This morning we're going to hear from the company's CFO, Jonathan Baksh, as well. We also have the company's Head of Investor Relations, Irina Kuznetsova. We're going to give them about 20- 25 minutes to go through the presentation, after which time I'm going to open it up for Q&A. If you do have any questions at any time during the presentation, please feel free to type those into the box. Time permitting, we will get to as many as we can. Please join me in welcoming Neo, and with that, Jonathan, I'll hand it over to you. Thank you for being here.
Thanks, Dan, and I appreciate everyone's time. I'm excited today to tell you the story of Neo Performance Materials. It's a company that has been at the forefront of ensuring supply chain sustainability within critical materials, specifically rare earths, for decades. This is an area we've been very passionate about for a very long time, but it's also a topic that has been front-page news as of late. I'm sure everyone is interested in learning more about this industry. This is actually the first page that we have, the front-page news of rare earths. The moment that is important within our industry was April 4, and this was the day that China responded to U.S. tariffs by restricting the export of heavy rare earths, as well as heavy rare earth products, including permanent magnets.
It was just weeks and months that followed where there were headline news around the world, within the Western world, highlighting that supply chains, critical supply chains, including automotive supply chains, were at risk of shutting down due to the limitation of getting these rare earth and permanent magnet products. This shows you the criticality, as well as the supply chain risk, with China dominating this space today. Neo was one of the few companies that has the capability and technology, both within and outside of China. This is basically the story that you will hear over the coming pages. Another piece of headline news for the company, this was actually the G7 summit just about a month or two ago.
The President of the EU Commission, President Ursula von der Leyen, actually opened up her speech at the G7, holding a Neo magnet, a magnet that came from Neo Performance Materials out of our European facility. She held the magnet, and this was a statement about ensuring supply chain sustainability. She made a comment about material coming from Australia, produced by a Canadian company in Europe, and being supplied to automotive manufacturers. This was a major point. A company, you know, we're a small company, but to be shown on this stage was an important moment for us. In fact, that was followed by Prime Minister Carney also holding up a Neo Performance Materials magnet during the G7 summit. An exciting moment for the company. Okay, who is Neo Performance Materials?
We're a company that has decades-long experience developing permanent magnets inside and outside of China, doing midstream rare earth separation inside and outside of China. I'll spend the coming pages talking about the macro tailwinds and the geopolitical tailwinds supporting these industries. The takeaway here is that we have a strong base business. You can see to the right, we operate across three segments, and I'll teach you more about what each of them do. We have solid revenue, solid trailing EBITDA, really good geographical diversification within our revenue base. We're currently the most integrated rare earth magnet company outside of Asia. Like I said, 30+ years across a lot of these end markets. As Dan mentioned earlier, we are traded on the TSX as well as over the counter in the U.S., and we do have three covering analysts per the bottom right.
Here are the three business units that we operate across. The top two, Chemicals & Oxides and MagneQuench, sit within the rare earth value chain. I'll spend a lot of time showing you that value chain and talking about it. Basically, you can think of Chemicals & Oxides as the midstream separator of rare earths. This business will take ore from mines. We're not a mining company. We generally have off-takes, and we will source from mines. We'll take that ore, separate it, and then take it from these rare earth oxides and basically make other value-add products that touch various end markets that I'll cover later on in the deck. The biggest use of rare earths is magnetics, and this is why we have a standalone division called MagneQuench that has a long history and is a leading player within bonded magnets.
We have a major growth opportunity within sintered magnets that, again, I'll cover later in the deck. We have another business unit that's called Rare Metals. This sits outside of the rare earth value chain, but it is other critical materials, things that go into semiconductors, superalloys, superconductors, and electronics. Again, very interesting end markets. Why invest in Neo? The coming pages will emphasize these three themes. One, you have major macro trends. All of the markets that we touch are growing at solid CAGRs, and the materials that we provide are critical to enabling these technologies. The second is you have the geopolitical forces and public policy tailwinds. I mentioned China's domination within this space.
In addition, all governments within the, again, the Western world, the developed nations, have rare earths and much of the products that we produce on their critical materials list, and you're seeing a lot of action, including public policy regulation and investment to support localization of these critical material supply chains. You have Neo, a company that is uniquely positioned. The only company that can say that we've, again, been doing permanent magnets, rare earths, inside and outside of China, and we're already a supplier to a lot of these key end markets, including the automotive market and the robotics market. These are customers that we already have. The following pages will cover these themes. The first topic is the macro trends. This gives you the second level of detail. I won't cover all of these areas.
I think all of them are interesting, but if you look at vehicle electrification, 85% of EVs and hybrid electric vehicles are driven by traction motors, specifically rare earth magnet traction motors. This makes it a critical material for enabling vehicle electrification, and it's within a key component in the vehicle. When you think about a vehicle, the primary components are the battery and the motor, and this is a key element with enabling the motor. The second interesting area is robotics and automation. Magnets, permanent magnets, are used, and they will be used. They're currently used within factory automation, so think of your large robots that sit on factory shop floors, but they will also be a critical component in humanoid robots, which is an area, an interesting emerging area of growth that we expect 2035, 2040, this to be a major demand driver for permanent magnets.
There are a lot of other areas, including AI server cooling and aerospace defense and water treatment that our products go into as well. Now let's shift into the geopolitical forces and public policy tailwinds. If you look at the far left there, customers are requiring their supply chains to be diversified. These are, again, critical materials, and if you look at the current state of play, more than 90% of rare earth permanent magnets come from China today. These are critical components in things like electric and hybrid electric vehicles. OEMs have been working to diversify that supply risk for years. This is a known area of risk. What's happened more recently is that that risk has been realized with the actions that China, again, took in April. It was a known risk that has now effectively been realized.
In support of this, you have each nation working through different mechanisms. In the E.U., for example, they have a Critical Raw Materials Act that requires a certain amount of material to be sourced outside of one jurisdiction and then a certain amount of material to be sourced within the E.U. It also has metrics that are required to be hit for sourcing of recycled material. You have major actions that have been front-page news more recently, including the DOD, the US Department of Defense, making a major investment in a rare earth company in the U.S. These are statements about national security and the criticality of these materials. If you look to the right, this gives you a view of demand. The top right chart shows you demand in metric tons for permanent magnets. You can see the strong growth curves.
The bottom right shows you the demand for these same permanent magnets, but outside of China. It just gives you a subset of Japan, U.S., and Europe. You can see the strong growth curves. The main takeaway of that bottom right chart, though, is if you just look at 2025, there's 75,000 metric tons of demand. The current installed capacity outside of China is only 20,000 metric tons. This shows you even today, without all the growth that is to come, there is a supply and demand imbalance that is currently filled by China. Going a level deeper into the rare earth value chain, this gives you a really good view of all of the steps going from mining to magnet and the key players that are involved. If you look, there's just a few takeaways I want you to have. I know there's a lot on this page.
I just want you to absorb a few things. First, if you look at the pie chart in the mining title there, you can see effectively 60% of mined material for rare earths come from China, 40% come from outside of China. That 40% is primarily two operating mines, which are the first two on the list: Linus out of Australia and MP Materials out of California, out of the U.S. However, as you move to the right in this value chain, you'll see that it becomes more China-dominated. As you move to separation, roughly 85% of separation is done in China, 15% outside. Metals and alloys is 90/10, and then magnets is 93/7. 93% of rare earth magnets come from China. This is actually the constraint within the supply chain: separation, metal making, and magnet making. This is exactly where Neo plays.
Neo operates across all of those elements of the value chain. The last thing I'll highlight, and I'd say is the most important, is kind of to the far right, which is who are the magnet players today. In that remaining 7% outside of China, the dominant players are the Japanese three, which is TDK, Shin-Etsu, and Proterial. You, of course, have Neo as well, but then you have multiple other companies, startups, and players, including Star Group out of Korea, Vacuum Schmalz out of Germany, and several other players who have announced magnet strategies within the U.S. This is basically the ecosystem of players. There's not that many who are attempting and are capable of delivering to the opportunity. Finally, you go to Neo.
I already mentioned Neo's track record, 30-year history operating in these spaces and doing so, again, both inside and outside of China, offering dual supply chain capability to its customers. We're also a technological leader. We have an exceptional R&D center, a technical center of excellence within Singapore. We have a world-class rare earth lab in Europe. All of our manufacturing facilities have really strong R&D centers as well. We do have a pretty diverse geographical footprint. We operate, our manufacturing facilities sit in Canada, the U.K., Germany, Estonia, China, and Thailand. We do have quite a broad geographical footprint. Lastly, and one of the most important factors, is we have long-lasting and deep customer relationships. We've been delivering to the automotive market for decades. We supply to various other end markets.
This is an important fact pattern, basically to say, with all the growth that is to come, Neo is a supplier to many of these players already. As we flip forward the next few pages, we're going to basically cover these three topics, which is value creation and specifically our strong balance sheet, our financial strength, our strong performance, the growth prospects, and our track record of execution. If you look at our current financial position, we have a really good balance sheet. We sit with $80 million in cash, about $93 million in debt. We generate strong operating cash flows. We have been undergoing two major capital projects. These are growth capital projects over the last few years, but we're nearing completion. Sustaining CapEx is fairly nominal. That basically means we do have strong free cash flows.
In addition to that, we pay a dividend, and we have so since our IPO back in 2017. We also have a newly activated share repurchase program. We've always or generally had an active share repurchase program, but that was actually put in place in June. We've taken actions to ensure more stable and more resilient EBITDA performance. This can be seen over our trending five-quarter EBITDA performance, which has been very strong. Next, let's talk a little bit about the growth opportunity. This is now really focused on the permanent magnet opportunity outside of China. We've already talked about Chinese domination within this space and the need for localized supply chains. If you look to the right, that is a picture of Neo 's newly built European permanent magnet facility. We completed construction in 500 days. The grand opening will actually be in September.
This was a $75 million capital project that'll create 2,000 metric tons of capacity. It'll be first to market, able to supply the European automotive market with permanent magnets. This is really an area that Neo sees itself perfectly positioned to deliver. We've announced two major awards to date with Tier 1 automotive and major OEMs within Europe. We do see ourselves, again, positioned to grow this business. The way you think about it is Phase I is 2,000 metric tons. Our plan is to extend this facility to 5,000 metric tons. Our goal long-term would be to add additional 5,000 metric ton facilities elsewhere in the world, with the goal of building this over the course of over a decade, of course, but with the goal of building this to over 20,000 metric tons of global capacity, making us one of the top players outside of China.
The last thing I'd highlight is this site, the first few awards have been automotive, but automotive, I would describe as the highest level or one of the highest levels of technical specifications for permanent magnets. The facility will be capable of delivering to other end markets like renewable energy, like drones, like power tools, and all the other markets that these permanent magnets are used in. Moving forward, these are additional pictures of the facility. These are highly technical and complex processes to produce these permanent magnets. Think about 15 sequential manufacturing steps, highly complex flow, but you're not only dealing with very tight tolerances in manufacturing specifications, but you're also dealing with the physics because you're dealing with magnetism as well, or magnets.
It actually matters, the physics and know-how to be able to put metal on the front end and to get a magnet that meets technical specifications on the back end is where all the challenges are. This is where Neo has a long history and a long track record of being able to deliver products to this space. That actually goes to the next picture, which is out of this facility in April. We produced our first batch of EV traction motor grade magnets for our first award that we had announced last year. These were qualification samples delivered to the customer, again, at the customer's specifications and delivered on equipment that was commissioned just months prior to that. It was an amazing accomplishment for the team. This is a picture of them in April delivering the product.
Also, again, consistent with the growth strategy, I mentioned two major capital projects for the company. One of them was the sintered magnet facility, the new European permanent magnet facility. The second project is this emissions catalyst control plant that is newly built in China. We're a top three player of mixed rare earths that are used in emissions catalyst control plants, which go on ICE and hybrid vehicles. This was a facility that we actually designed in additional capacity because we saw an opportunity for us to grow this business at 10% CAGRs moving forward. This is exactly what has happened.
The facility has commissioned late last year, and we've seen unbelievable performance in the first two quarters of this year, including all of the expected benefits that we wanted to see through the automation and cost reduction efforts, in addition to really good customer traction, a strong pipeline of opportunities. The facility is really impressive. It shows well. Customers have been giving really positive feedback, and we've seen that convert into new business as well. Next, I spent all the previous pages talking about rare earths and permanent magnets, which is really the core of the company. This is what we're focused on. This is where all the growth is. Like I mentioned at the beginning, we do have a very interesting rare metals business, which does other critical materials. I'll just highlight a few interesting components of the Neo portfolio.
First, you can see in the bottom left there, we do hafnium. In most of our rare metals businesses, we're a recycler. We actually do recycling of hafnium. Hafnium is used in superalloys. Much of our product is supplied to the U.S., and it would go into things like industrial gas turbine blades or blades in jet engines. This is a key material within aerospace and within the industrial gas turbine market. We're one of the top providers and recyclers out of Europe. Another interesting product that we produce is gallium. We do this out of Canada. We're actually the only recycler of gallium that's able to recycle and upgrade to semiconductor grade. This is a key component because basically over the last few years, China has increased its restrictions on gallium.
About 96% of the world's primary gallium comes out of China, and China has put restrictions and then an outright ban on gallium going from China into the United States. We have an asset that is uniquely positioned to benefit, but also has a unique capability that is not seen elsewhere. The last product I want to highlight in the bottom right there is a rare earth product. Actually, it's a rare earth product that's used in water treatment. This is a testament to Neo 's R&D and technical sales capability. This was a product, this was a new application of rare earths, and it's used in wastewater treatment. Think about municipal wastewater treatment facilities. We'll add this rare earth product in to reduce phosphorus levels and sludge. This is a business where we've seen unbelievable traction. We've grown to over 100 customers. It's still small.
We don't have a huge penetration rate yet in the U.S., but it has great momentum, really positive customer feedback. What we really like about this business is although the qualification process is you have to go through multiple steps and trials with these municipalities, it is really strong repeat business. Once qualified, the customer continues to buy every couple of months on consistent orders. It's really good sustainable revenue. I'll just have the last couple of pages here is execution and financials. Here we showed some of the major milestones met over the last two years. This is actually the two years for which our new CEO, who was the former CFO, did have a long standing in the company, but he stepped into the CEO seat in 2023.
We've been on a path of focusing the business, streamlining, including a series of sales that we did, asset sales, adding to our magnet business through an acquisition that we did in early 2023 of SG Tech, a U.K. magnet business that has assembly capability. This move towards downstream value add was important to us. Lastly, we've been taking actions to streamline the portfolio and reduce earnings volatility by moving away from the upstream and closer to downstream value add products. These are just a series of milestones that we've met, but we've had a really good track record of saying what we're going to do and actually delivering on it. We've been pretty open with the market as we hit each of these milestones, and we've been setting accountabilities for what people should expect to see moving forward. Lastly, our Q2 performance is what I wanted to highlight here.
It is just to say we've had, I would say, six sequential quarters of fairly strong performance exceeding our EBITDA guidance. That has been true through the first half of 2025. We exceeded our Q2 guidance and our first half guidance. We actually raised our 2025 adjusted EBITDA guidance from $55 million- $60 million initially guided to now $64 million- $68 million. This just shows the strong momentum within the business. The last thing I'll highlight is we already talked about bullet two, which is all of the milestones within our European permanent magnet facility. The other key thing to highlight is heavy rare earths are a critical piece of the rare earth value chain. I haven't talked a lot about it, but I'm happy to answer questions if you're interested.
This is another capability where Neo has been doing this for 30 years, and we're actually adding this capability into Europe. It's something that we will commission again later this year. It'll be a pilot line. This is another example showing Neo 's capability to enable this supply chain outside of China. Bringing this capability into Europe will be critical to support rare earths long term. With that, I'll conclude. I'll just say this deck is available on our investor relations website at neoperformance.com. You can feel free to access this. With that, I'll pass it back to Dan.
Thank you so much, Jonathan. That's a really awesome and detailed presentation. We've got just a couple of minutes here, so we do have some questions, and I'm going to try to combine as many as I can so that we can get to as many. I was hoping maybe you could talk a little bit about the competitive landscape in which you operate in terms of geographic diversification and customer alignment and how you compare to the competition regarding your new magnet production strategy.
You know, that's a great question. I'm flipping back to this page because this is really the competitive landscape. The way I would describe it is the Japanese players, TDK, Shin-Etsu, and Proterial, they are outside of China, they are world-class market leaders. They have very good technology. They're very capable. However, most of their capacity is obviously used at this point. They will continue to grow, and they'll be able to deliver to this market. Outside of that, I would consider most other players emerging players in this space. The reason Neo is well positioned is because, one, we've been in permanent magnets for decades. Two, the markets that we are going to supply to are already customers for Neo. Think about automotive as an example. It is hard to be an automotive customer.
Neo is probably one of the only folks that can say we currently supply to automotive. Three, we're vertically integrated across the value chain, right from separation through magnet making, which makes us uniquely positioned. These are not areas that we're entering. A lot of these players are entering these areas, this space for the first time. This is stuff that we've been doing for decades. I think that is what really differentiates us compared to the competition.
You've actually answered a few questions in that one, so thank you. You've spent a little bit of time talking about what's going on in Europe and recent investments. I'm just curious, you know, why do you think now is the time to go about doing that in Europe and expand production?
Absolutely. We actually were, this journey for Neo didn't start recently. I would go back to maybe 2020. We were doing a lot of work under, basically, the view from Neo was magnets are critical. They're going to be critical to vehicle electrification. These automotive OEMs are going to look to diversify because not necessarily diversify away from China. It was just that nobody would accept such a critical component coming from one jurisdiction. You can't have all your supply coming from one jurisdiction. It's just too high risk. Our view was these customers are going to invest, specifically automotive customers. The journey started back then. We evaluated all regions, and we felt the European automotive market was furthest along and most sophisticated in its view of diversifying that risk. We were pulled to Europe.
We located ourselves in Estonia, which allowed us to be co-located with our separation facility. It allowed us to do closed-loop recycling all within the country. What we've seen since then is, like I said, the risk has been realized. Now what you have is outside of automotive, you have a series of other industries that are now interested in also diversifying. Our phone is ringing off the hook with inbound saying, "Please solve our supply chain risk here. We need a solution." That's kind of the current state of play. We've been working on this for the better part of five years. Yeah.
Kind of along those lines, and it ties back to my first question with the competition, can you maybe quickly just let us know, you know, how does Neo engage with customers and governments and regional partners in these jurisdictions in which you're investing? Maybe a little bit about how that differentiates from other players in the space.
Starting with customers, we have customer relationships already within automotive. If I give you an example, MagneQuench, our magnet business, half of its business is already automotive. Relationships with Tier 1 automotive and understanding what it means to be an automotive supplier, which is, again, one of the most rigorous supply chains to be involved in, Neo's already qualified and has a reputation there. Our customers, when they're looking for solutions to solve this problem, Neo is one of the reliable partners. What I would say is unique now is that the OEMs, the automotive OEMs themselves, are now involved and engaged in the decision-making because of how critical the whole supply chain for rare earths is. Now you have Tier 1 automotive, the OEMs, and players like Neo or the magnet players involved in discussions on how to solve the supply chain risk long term.
I think that's the customer lens. Within governments, Neo does spend time within DC, in Brussels. We have for a long time. We're one of the few operators, one of the few, when governments look at how to enable these supply chains, there's very few people who are actually operating assets today in this industry. We do have a very good relationship across different governments. I would say we were actually the first company to get a grant from the E.U. Just Transition Fund in Europe, which supported our European permanent magnet facility with a 20% grant of eligible capital spend. We have the relationships. We do get government support. I think over the last few months, things have escalated, obviously. Now it's a question of what does the forward-looking landscape look like?
Yeah, no, that's really helpful. We're unfortunately kind of up on time, Jonathan, but I just wanted to hand it back to you so you can let everybody know what the company has coming up in August and September.
Absolutely. I do appreciate everyone's time. We just printed our Q2 earnings in August, and we had really, really strong performance. September is going to be a major milestone for the company, as you can see to the far right here with the grand opening of our European permanent magnet facility. We're really excited for the milestones. There's still a lot of work to be done. As I said to start, I think Neo is uniquely positioned to deliver on the opportunity here. With that, I do hope to connect with all of you, and I'm happy to answer questions via one-on-ones or anything that follows. Thank you so much for your time.
Yeah, Jonathan, thank you so much. Irina, thank you so much. On behalf of everybody in the audience, we appreciate the presentation on Neo, and it sounds like there's a lot to be excited about in the months ahead. Thank you for being here, and for those of you in the audience that participated, thank you as well. We'll see everybody later.
Thank you.
Bye.