Hello and welcome to Virtual Investor Conferences. On behalf of OTC Markets, we are very pleased you have joined us for our Clean Energy Metals Conference. Our next presentation is from Neo Performance Materials. Please note you may submit questions for the presenter in the box to the left of the slides. You can also view a company's availability for a one-on-one meeting by clicking "Book a Meeting" in the top toolbar. At this point, I'm very pleased to welcome Jonathan Baksh, EVP and Chief Financial Officer of Neo Performance Materials, which trades on the OTCQX Best Market under the symbol NOPMF and on the TSX under the symbol NEO. Welcome, Jonathan.
Thanks, Greg. Hi everyone. It's a pleasure to be with you today. I'm really excited to tell you Neo Performance Materials' story. It's a company with a deep history, and it's a company that's been at the forefront of providing key inputs and key materials that are critical to many future-facing technologies. I'm excited to walk you through Neo's story today, but I wanted to start first with some news and headlines. This is because the industry we operate in has been on the front page over the last several months. Neo participates in the rare earth space, and an important date in recent history for us was the date that China responded to U.S. tariffs with the restriction of heavy rare earths and heavy rare earth products, including permanent magnets. This was in April of this year.
It was the weeks that followed where many companies, and there were many headlines around the world of supply chains in the U.S. and in Europe raising their hand and saying we're at risk of shutting down due to the lack of supply of these key inputs, most notably being the permanent magnets. This is the backdrop for which we start the conversation. Next, we have some news that's specific to Neo. This was a major moment for the company, and this is at the G7 Summit a couple of months ago. The President of the EU Commission, President Ursula von der Leyen, actually held up one of Neo's magnets in her opening speech, talking about the criticality of securing these supply chains and showing that Neo is a key element of doing that. That magnet was also held up by Prime Minister Mark Carney of Canada.
This was a major moment for the company. We're not a large company, but this was a huge moment and a huge statement about how critical our products are to securing these supply chains. Now a little bit about Neo. Neo is a company that has been in the permanent magnet space as well as the rare earth processing space for over 30 years. We've been doing these activities both inside and outside of China for decades. As I mentioned, and as I'll go through on the later pages, there are many macro and geopolitical tailwinds supporting the industry. If you look to the right, you can see the company does have a strong base business. We generate a healthy amount of revenue and EBITDA. We're the most integrated rare earth magnet company outside of Asia.
Again, we're one of few companies who have such a deep history in this space. When you look at our revenue segmentation and the geographical dispersion of our revenue, you can see we're pretty evenly distributed across our different business units, across different end markets, and across different geographies. Looking at the three business units that we operate under, first you have Chemicals & Oxides, and this business has two components. One is taking ore from mines and performing the first step, which is rare earth separation or processing. It's a chemical separation process, and this takes the ore and puts it into its constituent rare earth oxides. I want to emphasize, Neo is not a mining company. Our first input is having off-taking, taking product from mines and then doing separation into oxides.
We then take those oxides, and the second component of the C& O business is producing value-added products out of these oxides. Some examples: we do a mixed rare earth oxide that is used in auto catalysts. We do things like medical-grade gadolinium, high-purity dysprosium used in multilayer ceramic capacitors, and we have a mixed rare earth product that's used in water treatment. You can see there's various end-use applications for these rare earths, and we have a great team who's able to perform R&D and commercialize products for various end markets. The biggest use of rare earths is magnetics, and this is why we have a standalone division called Magnequench, which has a 30-year history of doing permanent magnets inside and outside of China.
This is where we see a very compelling growth story that I'll talk to you later, which is we have a major project in Europe, which will be first to market, providing sintered magnets to the European group as well as to other countries. Next, you have the Rare Metals division. This business sits outside of the rare earth value chain, but it does other critical materials, including hafnium used in superalloys and gallium used in semiconductors. Now, why invest? What's the investment thesis? You have these three elements, and the pages that follow will give you additional details. At the highest level, there are macro trends supporting all of the end markets that we touch. This includes electric vehicles, robotics, as well as everything that's centered around environmental sustainable solutions and clean tech. We touch all of these end markets, all of them growing at healthy CAGRs.
You have the geopolitical environment. As I mentioned in the opening statement, China currently has a dominant position within the rare earth value chain. 93% of the world's permanent magnets come from China today, and this creates uncertainty for certain supply chains that require geographic diversification. On top of that, you have developed nations around the world who have rare earths and many of the critical materials that we produce on their critical materials list, and they're looking to both put public policy, regulation, and investment dollars behind supporting localization of these supply chains or at least sustainable options within these value chains. You have the bottom bucket, which is Neo, a company that is uniquely positioned, having a deep history within rare earths, within permanent magnets, and decades-long experience operating assets that support these end markets. Now we'll go into these three areas in a greater level of detail.
First, we'll start with macro trends. Just to give you an understanding, and I'll focus on magnets. Permanent magnets are used in basically high efficiency and micromotors. These are things that are almost embedded in all applications and things that we use on a daily basis. You can think of anything from electric vehicles and hybrid vehicles, but even things like your high-power vacuum, circulation pumps, heat pumps, fan and cooling fan systems. You have a whole bunch of different industrial and end-use applications, even including wind turbines, for example. Permanent magnets are critical to many different technologies. Electric vehicles is one where we see, sorry, electric and hybrid electric vehicles is one where we see a tremendous amount of growth and potential opportunity. Another very interesting area that could drive growth in the 2035 or 2040 plus range is humanoid robots.
This is going to be another major use when you think about all the micromotors that are going to be used or that are used within the humanoid robots. Another interesting industry is, and one that we serve today, is the AI server and cooling system. We provide cooling fan or magnets used in cooling fans to the server industry, and this is a place that we've seen major growth given the advent of AI and the additional capacity coming online. Flipping forward, let's look at the geopolitical forces and public policy tailwinds. To the left, I already described the backdrop. Customers, OEMs, they are interested in diversifying, looking for geographical diversity for where they source permanent magnets. Governments are enacting regulation and support in order to enable the localization of supply chains.
This includes things like Europe's Critical Raw Materials Act requiring a certain amount of these critical materials to be sourced within the EU. You can also look at recent actions taken by the U.S. Department of Defense with their support and investment within rare earth materials, again showing that this is of the utmost national security concern and something that governments are extremely focused on securing long term. To the right, you have a view of demand. The top right shows global demand for permanent magnets in metric tons. This is third-party data. You can see the major growth curves. We like to take the subset of the data and show what is at the bottom right, which is what does demand look like outside of China or specifically within Japan, U.S., and Europe. You can see still very strong growth curves.
What I really want to call your attention to is the 2025 bucket. You can see 75,000 metric tons of demand, and today there's only 20,000 metric tons of installed capacity outside of China that's able to address that demand. You already have this supply and demand imbalance today, even if you don't believe in growth curves in the other years. This is a very important page, and there's a lot of information on this page. I think this is the one that people spend the most time looking at and asking questions about. It basically shows you the value chain for permanent magnets right from mining to magnets. There are just a few takeaways I want you to have. First, if you look at the pie charts at the top, within mining, 60% of the world's rare earth mining happens in China, 40% happens outside of China today.
That is primarily two operating mines, which is Lynas out of Australia and MP Materials out of the U.S., out of California specifically. These are the two main and major operating mines, and they already produce 40% of the world's rare earth ore. The problem happens when you move to the right. Separation is roughly 85% China, 15% rest of the world. Metal making is 90-10, and then magnet making is 93-7. This is actually the problem statement within the value chain, and this is where Neo plays. We do separation, metal making, and magnet making. We've been doing it for decades. We've been doing it inside of China and outside of China. To the right, you'll see the pool of magnet players. Within the 7% outside of China, the predominant players are the Japanese three, which is TDK, Shin-Etsu, and [Criterial]. [Criterial] was formerly Hitachi.
These are the major players. Outside of that, you have Neo and a series of other companies, not that many companies, but a series of other companies that are either new entrants into the space or have some tangential work that they do within the magnet industry. This is the ecosystem today. Last bucket was Neo's unique asset base and technical expertise. I talked about our long and deep history, billions of historical revenues within rare earth separation, within selling permanent magnets, deep technological expertise within rare earths, able to, out of our world-class R&D center in Singapore, produce a highly value-add product and then commercialize those products for various different end markets. We have a broad geographic footprint when it comes to our manufacturing facilities, including Canada, the U.K., Germany, Estonia, China, and Thailand. We are very geographically diverse within our manufacturing footprint. We have the deep customer relationships.
We already supply to a lot of these end markets, including automotive, including robotics and factory automation. We have a very technical and global sales staff that's able to both win new business, but also really support customers as they go through their transition and manage through all these geopolitical challenges. The next section I'm going to talk about, one, Neo's financial strength, the kind of core business. Next, the growth prospects, and this is specifically to the European permanent magnet facility. Then our track record over the last couple of years with what we've been focused on and the path of execution along our strategic focus areas. First we'll start with the financial strength and resilience. Although we have a growth story, we do have a very strong base business. We sit with $80 million of cash, roughly $93 million of debt.
We generate healthy amounts of operating cash flow, low sustaining CapEx. I will note we've been going through the two largest capital projects, growth capital projects in the company's history over the last few years, but those are coming to an end. We're nearing the end of capital spend that'll happen this year. After that, a sustaining CapEx is effectively a very low number, which means we produce quite a bit of free cash flow. On top of that, we've paid a dividend since our IPO. We do have a share repurchase program through an NCIB, and you can see our last five quarters of EBITDA. This has been a focus area for us, which is less earnings volatility.
I can tell you some of the actions later in the deck that we've taken in order to ensure that the value-add nature of what we do is evident in our margins. Now I want to talk a little bit about the growth story, and this is probably the most important element of Neo 's story today. This is the opportunity to provide permanent magnets and using Neo's history and capability to do so. The left-hand side we've already talked about, China dominates the market. There's a need for localized supply chain. The middle bar chart basically takes the demand within the U.S. and Europe and puts it into dollars. You can see a $3 billion industry growing to an $8 billion industry. Today, very minimal capacity exists outside of China to address this market. You look to the right.
This is a picture in the top right of Neo's new permanent magnet facility in Europe. We broke ground in 2023 and will be doing the grand opening in September of this year, roughly 500 days from groundbreaking to project completion. We're on track to deliver the project on budget and on time. This was a $75 million capital project. Phase one will have 2,000 metric tons of block capacity. The long-term view of Neo is that this phase one is just the early innings of a long-term growth plan for Neo. Phase one is 2,000 metric tons. We plan to extend this facility to 5,000 metric tons, and then we intend to do additional 5,000 metric tons facilities in other jurisdictions around the world, eventually growing this to a 20,000 metric ton business, which is over a billion in revenue.
This is a very important strategic growth area for us, and we think we're really well positioned to be able to deliver. The key milestones that we've hit over the last year are we've announced two major awards for this facility to Tier 1 automotive customers and going into major European automotive OEMs. On top of that, we announced in April of this year that we produced our first samples for one of these awards in April, and that was just two months after equipment was being commissioned. A major milestone that we hit very early on in the lifecycle. Of course, this site is expected to go into commercial production in 2026. We're very excited for the growth prospects within European sintered magnets and then broadly doing permanent magnets around the world. This just shows you some pictures.
I think it's always nice to be able to see the facility. This is over a 250,000 sq ft facility, highly complex. This is just snapshots of portions of the equipment. It is truly a world-class facility, and it is a very challenging, technically challenging manufacturing process when you're dealing with permanent magnets. We have a really competent and capable team that is executing this project. This is another picture of the April delivery that I mentioned. The first batch of technically spec magnets coming off the lines and being shipped to a customer to go through the qualification process. This was a major moment. This is, of course, the management team delivering these first permanent magnets. A few other, the remaining pages, I do want to talk a little bit more about value creation and growth in other elements of Neo's business.
First, this is the other major capital project that we've had, which was a new emissions catalyst control plant, which does mixed rare earth oxides for the auto catalyst industry broadly. We completed this facility in China in Q4 last year. We're already a top three provider in this industry. This was a site where we designed in additional capacity. We have, we're, you know, highly automated in a low-cost jurisdiction. We're really competitively positioned with the goal out of the site. With the opening of the site, we've seen amazing customer traction. We really think we're going to be growing this business at 10% CAGRs annually for the coming years.
We've seen very good traction in the first two quarters of this year, both with customers, but also with us realizing the expected cost benefits that, you know, through the automation, we're seeing those realized benefits very, very early on in the site going live. The last area of value creation that I'll talk about, I think the whole, everything I've talked about previously has been mostly focused on the rare earth value chain, rare earth oxides, and permanent magnets. I do want to hit on a couple other interesting growth areas. I'll start within our Rare Metals business. In the bottom left, you'll see we have very strategic and interesting assets. We do hafnium recycling out of Europe. Hafnium is a critical input to superalloys, and much of our product is sold into the U.S.
It goes into the aerospace market as well as into the industrial gas turbine market. We also produce gallium. We do this out of Canada, recycling as well. This business is also interesting because gallium, over the last couple of years, China has first imposed export restrictions on gallium going from China into the U.S. Then they put a ban on gallium going from China into the U.S. China produces roughly 96% of the world's primary gallium, so it's a major source of primary gallium. Neo sits as basically the only recycler of gallium in North America, capable of upgrading to semiconductor grade. It's a very interesting and strategic asset. This just shows you our technical capabilities. The last example I want to provide is the bottom right, which is water treatment. This is a rare earth product.
This is an example of us finding new applications of rare earths, and this product is sold primarily in the U.S., sold to wastewater treatment facilities in order to reduce their levels of phosphorus and sludge. This is a new application of rare earths, so it's displacing a non-rare earth product. We've seen phenomenal momentum. We have over 100 customers, extremely strong customer retention, and really strong conversion from trial to kind of closing up new customers. It's a very, very good business. It's not a huge business, but we also have very minimal penetration in the U.S. today with an opportunity to grow in Europe as we get qualified there. The other thing I really like about this business is, although the qualification process is long, once you secure a customer, it's recurring revenue as they have to source every few months to feed their wastewater treatment process.
These are just examples of Neo 's assets and our capabilities. Just a few slides left. This is the path of execution over the last couple of years. The reason that this is relevant, this time period is relevant, is our new CEO started in 2023. He's been with the company a long time. He was formerly the CFO. As he entered the role, he had a very specific direction that we were moving the company in. This included streamlining the business, focusing on select end markets, and this includes our magnet strategy. As part of that simplification, we divested a series of assets. We also acquired a magnet company in the U.K. This was both a beachhead into Europe, but also this company is really good at assembly. It allows us to move more downstream, going from magnets into assemblies. They have really, really strong capability there.
This is a focus on magnets, a simplification of the portfolio, and then executing two major capital projects, the ones that I mentioned, one that opened last year and the other one being the European permanent magnet facility opening this year. All of this has been in the effort of simplifying the portfolio, reducing earnings volatility, focusing on return on capital. Although we've hit major milestones, there's still a lot of work to be done, but we set out a list of accountabilities and we've been hitting all the milestones along the way. Perfect. The last thing I will highlight is 2Q. We did just close 2Q and did that earlier this month. We've had a really strong first half of the year, leading guidance for 2Q and then raising our full-year guidance from $55 million- $60 million of EBITDA up to $64 million- $68 million of EBITDA.
The last thing I'll highlight is we do have other interesting capital projects that are underway. This includes a heavy rare earth pilot line that we're implementing in Europe. Heavy rare earth capability is especially scarce outside of China. Neo is one of the few companies who have operated heavy rare earth separation capacity for over 30 years. We have the knowledge, we have the know-how, and this is a capability we're bringing to Europe. We're really excited about that. With that, I will close the prepared remarks. I'll open it up for Q&A. As a reminder, please feel free to input your questions into the Q&A bar. Okay, I will start with what are the main macro trends and geopolitical factors Neo expects will drive sustained growth in demand for its rare earth magnets and critical materials through 2030? It's a very good question.
When Neo first had its strategy to enter Europe with the European permanent magnet facility, the initial target market was primarily automotive and renewable energy. The reason that this was the case was that these end markets, the permanent magnets, were such critical elements of what they do, and they were invested in trying to diversify and ensure supply chain sustainability. They were willing to pay a premium in order to enable that. Now that that risk has been realized with China actually putting in export restrictions, the pool of demand has increased pretty substantially, meaning our phone is ringing off the hook from customers in all other industries, including things like power tooling. You can think of the applications like drones and all the other end markets that permanent magnets go into. Many of these end markets are looking for alternative supply.
I think the big growth areas are going to be electric and hybrid electric vehicles. Once we get through that growth curve in the next decade, the next one is going to be humanoid robotics. I think that's going to be a major and massive growth driver. This is also what third-party data would tell us. Perfect. The next question I'll cover is how does Neo's European permanent magnet facility strengthen the company's ability to offer OEMs secure non-Chinese sources of rare earth magnets for EVs and the robotic sector? I kind of mentioned this already, but basically, Neo has a deep history in permanent magnets. What we're really supplying, providing customers, is we have the manufacturing footprint. We're installing the permanent magnet facility in Europe. This is going to be the first to market, allowing European end markets and customers a European source of permanent magnets.
Within that, it includes providing a secure supply chain right from where material comes from all the way to the magnet making process. Because Neo is vertically integrated across the supply chain, we're able to provide customers this offering and this capability. I think we're really well positioned to drive this. The next question I see is what types of government support are you pursuing in Europe or in the U.S., if any? Neo is one of the few companies who actually operates assets in these end markets that are very interesting. We do spend time with the U.S. government, with the European government, with the Canadian government. We do have outlets to be able to discuss policy and bottlenecks and these types of actions.
What I will say is Neo's European permanent magnet facility had great support from the EU, including a grant that we received from a Just Transition Fund. We were the first company to receive a grant that funded 23% of the eligible capital cost of this new European permanent magnet facility. That's an actual show of support and effort. We expect continued support in Europe. We haven't announced anything outside of that, but I imagine governments are interested in supporting and enabling new entrants into this space to be successful. I imagine there's going to be more investment dollars to come from other governments. The next question is how is Neo leveraging its technical leadership in heavy rare earth-free magnet technology to address supply risk and win new automotive contracts globally? This is a very good question.
I hadn't actually highlighted this as a major outcome for Neo, but Neo, within our current or existing business, showing our technical expertise, is the only company who has produced a magnetic powder that goes into traction motors today. Traction motors of electric and hybrid electric vehicles today that is heavy rare earth-free. For anybody who sits close to the industry, heavy rare earths are really what are constrained when it comes to sources of material. Heavy rare earths are only available in China. This is a very interesting product offering. It was jointly developed, and this is a product where we expect a lot of commercial traction. The business has been growing, obviously, but it is possible for us to sell this to other OEMs. It's not constrained to one OEM.
This is a product that we do expect to grow in the coming years, given the restriction and the realized risk of heavy rare earths coming out of China. It is a major growth area for the company. This is the last question I'll answer. What is Neo's approach to balancing investment in growth projects with returning capital to shareholders? Another great question. The company has major growth projects ahead of us. However, we've had a history of returning capital to shareholders through a dividend and through our share repurchase program. The reality is that we have a really strong base business that generates healthy amounts of cash flow, and we do not today have a ton of leverage on our balance sheet. We funded our first, the two capital projects that I mentioned before were funded through debt.
We do have remaining debt capacity, but the reality is in the near term, we're through our two major capital projects, and the next major capital project is not in the near term. I think we're able to sustain shareholder returns and our buyback and our dividends. When it comes to the next round of growth capital, similar to what we did with the first round, we will be transparent with the markets, and we will communicate our capital allocation strategy ahead of formally announcing the capital projects and timing and specifics. I'm up on time. I'll end the conversation. I really do appreciate your time. I think if you have any takeaway, it should be Neo is really a compelling story with a deep history, fantastic capabilities, and a major opportunity, both given macro tailwinds as well as the geopolitical tailwinds that support us.
I'll close the call. This deck is available on our investor relations website. Please do feel free to book one-on-ones as well. Thank you for your time.