Neo Performance Materials

Good morning, ladies and gentlemen, and welcome to the NEO Performance Materials Inc. Q1 2024 Earnings Conference Call. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Friday, May 10, 2024. And I would like to turn the conference over to Ali Madhavi. Please go ahead, sir.

Good morning. Thank you, operator. Good morning, and thank you for joining us for NEO Performance Materials first quarter 2024 financial results conference call. On today's call, I am joined by Raheem Sulaiman, NEO's president and chief executive officer, and Jonathan Bach, NEO's chief financial officer. Please note that some of the information you will hear during today's presentation and discussion will consist of forward-looking statements, including, without limitation, Those regarding revenue, EBITDA, adjusted EBITDA, product volumes, product pricing, other income and expense measures, cash returns, operational changes, and future business outlook, including potential expansion plans and contracts. Actual results or trends could differ materially from those discussed today. For more information, please refer to the risk factors discussed in NEO's most recent financial filings. which were filed on CDAR earlier today and are also available on our website. NIO assumes no obligation to update any forward-looking statements or information which speak as of the respective dates. Financial amounts presented today will be in U.S. dollars. Non-IFRS financial measures will be used during this conference call. Let me now turn the call over to Rahim.

Thanks, Ali, and good morning, everyone. For a quick roadmap of today's call, I will touch on current market conditions, achievements of strategic initiatives, and then provide an update on our two major capital projects. Jonathan will then provide details on the quarterly results and financial position. So we started off the year from a position of strength as we generated $10.8 million of adjusted EBITDA, slightly ahead, but reasonably in line with our expectations. This is particularly notable in a quarter in which rare earth prices continue to decline, with lingering weakness in demand for magnetic applications, which has pressured most of the rare earth industry. Our strong result is driven by favorable performance across our value-add businesses, including the rebound of our rare metals business, as we expected. We also benefited from improved cost containment efforts, including driving operational efficiencies across magnet-clenches powder manufacturing facilities and our SILMET rare metals facility. Of course, it's important to remember that we are lapping a very challenging quarter in Q1 2023, where we experienced significant negative price volatility. And from the fourth quarter of 2023, which formed an unusually low baseline, driven by the timing issues in rare metals results. So whereas the comparable periods had significant unusual events, this period would be characterized as more in line with our expectations, but given the current softness in magnetic demand, and accounting for negative lead lag continuing to impact our separation business. At the business unit level in the quarter, each of our business units improved compared to the prior year. Magnet quench volumes are still generally lower than our expectations, maybe 10 to 15% lower than where we think the business should be operating today. But favorably, we are seeing solid volumes in our newest and growing applications, such as our heavy rare earth free traction motor and our finished magnets. However, volumes for other applications such as industrial and home appliance applications are lower related at macroeconomic headwinds, but we do expect these volumes will recover as well in due course. Within chemicals and oxides, our specialty environmental catalyst programs performed close to, but just under our targets for volume and margin contribution. We see these volumes and margins as within the reasonable range for this business and impacted more by timing within the automotive industry. However, our rare earth separations business continued to be pressured by negative lead lag due to further declining rare earth prices in the quarter. And at this point, I would say it's also adversely impacted by the absolute values of lower rare earth prices. This impact can be seen across the entire rare earth upstream and midstream industry today. And as Jonathan will detail later, our rare earth separation business produced negative gross margins in Q1 2024. which held back the even stronger results of our downstream businesses. Our rare metals business unit performed very strongly due to happening volumes in unit economics, which we anticipated and spoke about after a slower fourth quarter in 2023. At that time, we described the lower rare metals performance during Q4 23 as specific to the quarter with an annual view of rare metals being a better proxy for that business. Well, we maintain that view and are pleased to report that Rare Metals is on track after posting a very strong Q1 2024 to exceeding the prior year full year result. In addition, we have begun to see a positive impact from the Q4 2023 closing of the midstream portion of our niobium and tantalum business. It is still early days, but we are seeing improvements in gross margin, improvements in focus on operational costs, improvements in sales and margin opportunities in that business. We have not yet seen the planned inventory reductions as yet, but that is mainly due to us choosing to keep a relatively larger safety stock during this transition period. I would like to specifically recognize the work of our relatively new EVP for rare metals, Mohamed El-Mahmoud, and his team for executing this change rapidly and successfully. There are some tremendously important activities ongoing at NEO as we thoughtfully work against the key accountabilities and initiatives outlined on our Q3 call some six months ago. At that time, we detailed some ambitious short-term targets. There was a range of five to eight specific short-term goals across magnetics and critical materials, including MOUs with customers, offtake agreements for expanded supply sources and operational changes in our manufacturing footprint. In addition, we announced an additional goal to improve our public awareness and shareholder engagement. At the end of this six-month period, I am pleased to report that we delivered on eight out of the six to nine targeted goals, certainly achieving the high end of the range. And three of these targets were achieved over the past two months. First, we executed an MOU with Meteoric Resources for the supply of rare earth feedstock to our separation facility in Europe and to support rare earth for our magnet facility in Europe. Meteoric is an early stage development project targeting middle and heavy rare earth elements through its asset located in Brazil. It has the potential to deliver meaningful quantities of magnetic rare earth feedstock including dysprosium and terbium for our sintered magnet customers. This builds upon our efforts to partner with new and existing industry leaders to help accelerate diversified supply chains for critical materials. Second, we executed on the closure of our light rare earth separation facility located in Zibo, China. This is consistent with our mandate to reduce the investment in capital in low return businesses that are subject to very high levels of volatility. That business has been in direct competition with China's state-owned enterprises and other larger players, simply without the scale required to achieve an attractive return. The market for rare separations within China has dramatically shifted over the past 20 years, and maintaining a relatively small midstream asset makes less economic sense for NIO today, especially given the continuing trend for a more tightly consolidated industry. The closure of this midstream processing capability has no impact on our value-add downstream operations and reflects an important step on our commitment to strategically review each operating asset and facility on our journey to a more focused business and to have a more strategic operating footprint. In addition to rethinking our operational footprint and economic profile, We've also started a more deliberate effort to transparently communicate our business and amplify NIO's media and public affairs profile. Just last month, we hosted a large group of industry participants to our technical and innovation center located in Singapore to showcase many of the value-add technologies and application developments within NIO's MagniQuench and chemicals and oxides units. The feedback from attendees and industry analysts was overwhelmingly positive. with a general sense that NEO's set of competencies and world-class talents are a unique feature to boost NEO's midstream and downstream ambitions, and establishing NEO as a premier partner to work with for numerous upstream providers. We look forward to planning a similar event for investors and analysts potentially later this year. We're also building on our brand in the media. with numerous articles and features about NEO across several news media outlets, including a feature run by Deutsche Welle in Germany and broadcast across its international audience. We obviously fell short on one initiative, to deliver an MOU for our European-centered magnet plant. But when evaluating this shortfall, we evaluated against two considerations, execution and timing. From our perspective, We have a high level of confidence on our map for execution. We continue to work with customers on actual samples for actual magnets with real and detailed commercial dialogues. However, our timing is a little bit behind as the programs we are focused on have not been awarded as yet. There has been plenty of churn in the timing of electric vehicle announcements and deployments over the last six months, but we remain confident that electric vehicles will come to market. And we remain confident that the desire from the automotive OEMs to diversify supply risk away from one single jurisdiction where more than 90% of all rare earth magnets are produced today. This desire is also supported by the recently enacted European Critical Raw Materials Act, which requires, among other things, that 40% of the critical materials be processed within the EU for these technologies and no more than 60% be sourced from one single jurisdiction outside the EU. We remain confident in our ability to win magnet programs in Europe and in North America, and we maintain commitment to deliver a responsible ramp curve that will drive the long-term success of this facility. Similarly, when we build focus and accountability on our short-term goals, That behavior also translates into making excellent progress across our two major capital projects. First, as we reported on our last call, we began commissioning of our NAMCO catalyst facility in Q1. And to date, we have successfully tested all major production equipment and have produced customer-specific samples for our established high-volume programs. We are currently submitting production samples to customers for requalification, and we anticipate that this process will extend into the second half of 2024. We expect NAMCO to be running at production levels by the end of this year, and we expect this project to be delivered $5 million under budget. Second, our sintered magnet facility in Europe continues to progress steadily on time and on budget. We're a little more than halfway complete on the building construction and all major equipment has now been ordered. We also continue a steady recruitment effort to expand the strength of our technical team in Estonia on magnet technology. Taking a step back and looking over the last six months, we have delivered several impactful changes to our business model, which will benefit the business for years to come. We were awarded a new product platform for specialty magnetic powders used in automotive traction motors using a heavy rare earth free magnet technology. We obtained a new customer for the critical material gallium, developed a new source of supply and entered into tolling contracts to manage commodity price volatility there. We established a new supply agreement for separated magnetic rare earth oxides originating outside of China that will be used in traction motors. We executed an MOU for new light and heavy rare feedstock with meteoric resources. We exited our midstream niobium and tantalum process in SILMET. Tied to this, we expanded our supply base to numerous oxide suppliers. These changes are expected to generate improved EBITDA, less risk, less volatility, and improved return on capital employed. We discontinued operations of our light rare separation facility in China, which will also improve our return on capital profile, reduce volatility, and provide a better geographic diversity for NIO. And last, we began a new concerted brand awareness and communication effort to tell our exciting story here at NIO. With our strong start in Q1, we believe NIO is positioned to take advantage of more opportunities in 2024, and we continue to expect full-year adjusted EBITDA to grow by a double-digit percentage relative to 2023 and to see impactful improvements and growth in the years to come. Before I turn the call over to Jonathan, I want to address one additional change in that our EVP of Chemicals and Oxides, Jeff Hogan, has decided to retire at the end of Q3. For those that have had the pleasure of meeting Jeff, he has been an innovative and thoughtful leader, a great partner, and a great friend across the rare earth industry and for NEO for the past 25 years. We thank Jeff for all of his past efforts and all of his future contributions. Jeff will be working closely with his successor, Muhammad El Mahmoud, the current executive vice president of our rare metals business over the next five months. Since joining the NEO family about six months ago, Mohammed has been a force of positive new energy in driving change, bringing new perspectives, and creating accountability. Building on his multi-discipline background, Mohammed brings his global experience in automotive, in operational excellence, in innovative engineering, and in new business development to his expanded role at NEO. With that, I'd like to turn the call over to Jonathan.

Thanks, Rahim, and good morning, everyone. Our sales during the first quarter were $122.1 million with adjusted EBITDA of $10.8 million. We reported net income of $0.8 million for a diluted earnings per share of two cents. Rare earth pricing continued a downward trend throughout the first quarter, which marks a two-year decline in pricing for key rare earth products. Through the start of the second quarter, there has been some stabilization in pricing for magnetic elements, although it's difficult to discern whether this is sustainable as markets remain soft. If we look more closely at key magnetic inputs, neodymium and presodymium, or NDPR, pricing during the first quarter of last year declined by about 27% or $27 per kilogram. In the first quarter of 2024, pricing also slipped by about 20%, which is still meaningful. However, at absolute lower prices, that 20% decline represents only a $12 per kilogram drop, which has a smaller absolute dollar impact on earnings. The takeaway being declining rare earth prices resulting in unfavorable lead lag while still a net drag on profitability carries less weight today than it did one year ago. Shifting to business unit performance. Within MagnaQuench, first quarter volumes were up 23% versus prior year, but down 5% sequentially. As Rahim noted earlier, volumes remain below our expectations for the business due to the continued demand softness in select magnetic end markets. Most notable would be the enduring slowdown within the Chinese and European property markets, resulting in soft demand for applications related to housing starts, including heat circulation pumps, air conditioners, and home appliances. Against this backdrop, it's even more important to maintain a focus on driving operational efficiencies, and we're happy to see that the cost reduction efforts executed by Magniquench last year have driven sustainable reductions in operating costs, and the business continues to work projects focused on further improving our quality, cost, and delivery metrics. Looking across other end markets in MagniQuench, automotive applications have shown moderate improvement, particularly within our next generation bonded powder technologies, where we're pleased to continue to win new platforms for traction motor applications and remain confident in our team's ability to further grow this application. Lastly, our magnetic business continues to make steady progress in growing volumes, and we're pleased to have made headway into further commercialization of magnetic assemblies through our acquisition of SGTech. We view this as a strategic area for growth across our magnetic portfolio as we move further downstream and provide additional value to customers. Within C&O, our auto emission catalyst portfolio has remained stable through the first three months of the year. As we proceed with the commissioning and qualification of products from our new NAMCO facility, we invested $9 million in capital expenditures during the quarter. With more than 90% of the project under contract, We now believe that we are positioned to complete the project $5 million under our original budget with a total project cost of $70 million compared to the initial budget of $75 million. Outside of specialty products in C&O, Rahim touched on the challenges in our rare earth separation business, which lost money at a gross margin level during the quarter. We believe there remains a role for midstream separation in the NEO portfolio, but primarily to support either specialty rare earth applications or specific regional rare earth demands. In April 2024, we closed light rare earth separation facility in Zibo, China, as it no longer maintains these characteristics. We expect this action to improve return on capital, reduce earnings volatility, deliver cash back to the business, and have no meaningful impact on adjusted EBITDA moving forward. In the second quarter of 2024, we expect to take a non-cash charge of less than $2 million for impairment of assets, as most of the capital assets have been fully depreciated and remaining inventory will be sold or transferred to other NEO facilities. In our rare metals business unit, we saw strong financial performance driven by our recycling of Hapnea materials. As previously communicated, our rare metals business has inventory secured for contracted hafnium volumes through 2024. And this, combined with a revival in spot sales, allowed the business unit to exceed volume and margin expectations for the quarter. With the closure of our rare metals hydrometallurgical processing in Solmay, Estonia during the fourth quarter of 2023, we began to see improvements in operating efficiency, machine utilization, and yield, which translated to improved financial performance with the facility delivering its strongest operating margins in over four years. As Rahim noted, we also believe we can reduce our inventory levels to support this business under its new operating model. Shifting to the consolidated balance sheet, during the quarter, we effectively reduced our inventory by $27 million, and we remain focused on further reducing our working capital and inventory levels meaningfully throughout 2024. In the first quarter, we generated $11.3 million in cash from operations and invested $16 million into property, plant, and equipment. In addition, we repurchased $2.3 million of common shares through our NCIB program and returned $3.1 million in dividends to shareholders. During the quarter, we also drew $25 million on our EDC credit facility related to our NAMCO plant relocation and paid down $1.5 million of debt at SG Tech. We ended the quarter with $102 million in cash and remain in a strong financial position to deliver on our strategic initiatives. We're pleased with our start to the year, and we're highly confident in our team's ability to drive improvements across our business. With that, I'd like to open up the call for questions.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star, followed by one on your touchtone on the phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, simply press star followed by two. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. And your first question will be from Yuri Link at Canaccord. Please go ahead.

Okay, good morning, guys, and congratulations on a nice quarter. Thank you, Eureka. Yeah. So Rahim, just in terms of what you're seeing out there, rare earth prices, as you noted, were down considerably in the first quarter. As we think about the potential sources of supply for the new magnet facility in Estonia, I mean, are these prices not making it more and more likely that these new mines are going to be delayed or or worse? I mean, what's your comfort level with lining up the start of this facility with these mines? And I guess the second part of that question is, is there a backup plan? Like, can you get more feedstock out of Russia and out of energy fuels?

Yeah, thanks, Shuri. To be honest, the sourcing of rare earth and magnetics for our facility in Europe is probably not a very high level of concern for us. There are To give you an order of magnitude of what the industry looks like today, probably 30% of the rare earths are already mined outside of China. So there is plenty of rare earths available outside of China. The challenge affecting the industry, like Neil was saying, the challenge affecting the industry is that although 30% is mined outside of China and therefore China processes or mines 70% of it, when you get to the magnetic side of the equation, 92%, of magnets are made in China and only 8% made in the rest of the world. So there's plenty of material in the rest of the world that's outside of China that would become available to support growth on the magnetic side. I think at this price point, it is a challenge for numerous new projects. But let's bear in mind that Linus has added capacity and is going to get their NDPR oxide up to almost 10,000 tons. MP is talking about getting to 60,000 tons of total material mined Sara Verde and other projects are very close. So some of the projects already have significant cash in the ground and are ready to go. Other projects like the one that we signed with Meteoric has a very good distribution of materials and certainly rare earth prices impacts every project. But I think the projects that have the better distribution of materials will still come to market. And I think most in the industry outside of China see you know, there is demand for rest of world supply and believe that that will be reflected in price over time.

Okay, that's helpful. Sticking with the magnet facility, I hate to pick on the one goal you didn't achieve, but it is an important one. So two questions related to, you know, signing a firm customer for Estonia. Do you continue with the construction of that plant, even though you don't have a pen to paper? And would you hazard a guess as to when you might be able to sign a customer?

Yeah, so absolutely, we would continue with the plant. Not having signed an award or an MOU today, has actually little impact on a ramp curve that would happen at the end of 2025 and more particularly into launch programs in 2026. So I would say that there's not a concern there. I think we would be more concerned if we felt that we weren't having appropriate dialogues, that we were just having kind of these, let's say, generic MOU dialogues. I think if we were at that stage, that would probably be more concerning. But when we're talking about several specific programs where we've made, you know, not necessarily commercial agreements, but have a range within expectations. We have specifications that we're planning around. You know, the impact of not having an award within this May timeframe that I laid out, you know, like I said, we would give people updates on our path as we go rather than saying just trust us at the end of the day, we'll be fine. So, yeah, we missed on timing, but I'm not worried about execution.

And in those not quite commercial discussions, but discussions, are the economics of the project in terms of revenue and EBITDA consistent with your views of six, nine, 12 months ago?

Yes. Yes. The updates on the economics that I kind of laid out in the past several calls are consistent with everything that we're seeing in terms of our dialogues today. And like I said, I don't believe that the status here has affected our ramp curve in any way, and it hasn't affected our confidence in the project.

Okay. In the interest of time, I'll hop back in the queue. Thanks. Thanks, Yuri.

As a reminder, ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. And your next question will be from David Ocampo at Cormark Securities. Please go ahead.

Thanks. Good morning, everyone. Rahim, I mean, if I listen to your call and look at the MD&A, I think return on capital employed came up a few times. So just going back to Yuri's question, when we think about the centered magnet facility, what kind of returns are you modeling on a return on capital employed basis? And are you guys factoring in any Western world premium in your figures?

Look, I'm not going to get into the specific metrics on one particular project and what we think return on capital on that one project is. I'd say that we're very conscious of return on capital metrics. We're conscious that this is part of us building a larger business with significantly more opportunities elsewhere in the world. You know that we're getting 20% of our capital paid for by the Just Transition Fund in Europe. And our return on capital profile here is supportive of us, you know, knowing that we're going to have a ramp curve that takes time and there'll be startup costs involved. So we're very confident in the economics of the project. You know, in time, we would anticipate also announcing debt agreements that are specific to this particular project, which of course changes your view on whether you view things on a levered or unlevered basis given NEO's asset profile, I think, you know, and the fact that we have very little leverage on the company today, probably makes sense to think about the project in those terms. And when you think about the projects in those terms, we're comfortable that this is the right direction, that the opportunity is not big, it's massive, it's large, it's not large, it's incredibly large with respect to the multi jurisdictions and the launch position that NEO has. We are simply in pole position relative to a very, very few number of suppliers in the world outside of China that have access to the technology and capabilities that we have access to. We believe this is a leapfrog event to get into a number of different opportunities globally.

I could respect that you don't want to provide return metrics on a specific project, but do you guys target something on a company-wide basis? And how does that compare to kind of your their cost of capital?

Sure. So, I mean, look, we would target mid-teens on a company-wide basis. This project is probably at the lower end of something that we would target, but you'd have to remember that this project is phase one of phase two and of what comes next. So, certainly, I think that that's how we think about projects in general and, you know, arguably that applies to existing as well as as new capital deployed. So that they're, look, I'm happy to, well, I'm not happy, but I'll acknowledge that the first phase of a new facility on the other side of the world as a standalone project probably has a lower return on capital than we would desire, certainly lower than the cost of debt. So there's still absolute leverage associated with the project. But I think what comes and what will follow it will have increasingly strong return on capital profile.

Gotcha. And then last one for me, just on rare metals, obviously a strong quarter because it does sound like there's some spot sales that led to the big print. I'm just curious what the normal run rate should be for the balance of the year, just given the contracts that you have and the inventory that you have on hand.

Yeah, I think when we talked about it, you know, in our last call, we said thinking about the business, you know, 2022 and 2023 were both record years. for the rare metals business. And despite the Q4 2023 result we had, we still had a record year overall in 2023. And at that time we said, you know, don't worry about Q4, like not don't worry about it. There's a timing difference here in Q4. And when we get to 2024, folks will see that our view is that business will continue to sustain and will continue to grow. So I, you know, at that time we said 2023 was the right proxy. And today I said 2023 full year plus. I think we'll exceed that number that we have in 2023 by a reasonable amount. The number that we presented here in Q1 is also at the high end of the range, but that doesn't change our strong views of where that business will end full year.

Gotcha. That makes sense. I know it's hard without a crystal ball, but do you think that strong performance and happening continues into 2025? Just wondering if any of those demand drivers begin to fall off as we exit the year.

I think that, yeah, I think it does. I mean, I do think that where the Hafnian business is right now is producing very healthy margins for us. I think that there is a dynamic that 2025 is a long time away and will that pricing feel more pressure? I think that's a distinct possibility. But I also think that there's growth opportunities within the other rare metals business, right? I mean, right now we're talking about hafnium as being the primary product that carries today, but there's lots of other products in rare metals and the work that Mohamed has been leading with our team in SILMED on niobium and tantalum. I think we'll start seeing some benefits and more tangible benefits from those activities as well. So I do think that hafnium tapers off, but I do think that there are other things behind it that will give us a better diversified portfolio kind of a higher quality of earnings in the diversification and value-add nature.

Okay. Thanks a lot, guys. I'll hand the call over. Thanks, David.

Next question will be from Ian Gillies at Stifel. Please go ahead.

Morning, everyone. Morning. Acknowledging the dollar amounts are challenging to mark, but would you be willing to provide some goal posts of maybe where you want to get the cash conversion cycle to on a working capital basis or maybe where you'd like to get to on inventory days? Because it's pretty obvious you're doing a lot of work to try and clean that up. And so, you know, as we think about David's prior comment about returning capital employed, that might be useful for us.

Yeah, certainly inventory, our inventory level is too high. In an odd environment, when you look at our cash and inventory, those two numbers alone actually dwarf our market cap, which is a pretty weird dynamic. But hey, let's focus on converting that inventory into cash. I think that is the plan. I think internally we've set goals in the range of $30 to $50 million of that inventory we'll convert to cash on a sustainable basis. Jonathan talked about the significant reduction in inventory already in Q1. I think we have line of sight to more reductions in inventory that are very comfortable that will exceed that $50 million, all things being equal. We have talked about in the past that there are times when we make strategic buys of inventory, so I would say independent of a strategic buy of inventory. I think us setting a target, you know, we set the target of 30 to 50 million, I think we'll be on the high end of that range.

Okay. That's helpful. And then there seemed to be some transition costs related to some of the projects that rolled through the income statement in Q1. Are you able to quantify the amount? that you think that ends up being for a full year or how much you think that ends up being across the business as you go through some of these capital projects?

Yeah, so for the most part, I think in Q1, the impact is about a million dollars, probably just less than that. We did add that back to adjusted EBITDA. And I think for the full year, it's probably just maybe around one more million dollars, maybe a little bit more than that. So not a huge number. You know, the most of that is associated with the fact that we're running two facilities in our catalyst business. We actually didn't add back the majority of costs that were occurring in our niobium and tantalum business as we streamline that. We just actually let that roll through the P&L because it was harder to differentiate exactly what activities were clean up on old projects versus kind of the like. So that's actually just sitting in our numbers as a bad guy. But yeah, I think maybe It's another million or so by the time, assuming that we do get qualified and can run new products sooner than later.

Thank you. Next is a follow-up from Yuri Link at Canaccord. Please go ahead.

Thanks, guys. Yeah, two follow-ups for me. Just for modeling purposes, what's the revenue impact of shuttering the rare earth midstream business in China?

Well, that's a good question, Yuri, because generally we don't spend a lot of time thinking about it. So there's two dynamics to that. One is rare earth prices are always moving. So it's hard to figure out the exact revenue number. And two is some of that material would just get sold in our company. So probably $20 million. If I were to back up, external sales from that business is probably $20 to $30 million, depending on the level of rare earth prices.

OK. That makes sense. And then when I was on earlier, I asked you about the economics of phase one revenue and EBITDA. Do you want to just give me an update on or repeat what you said previously in terms of what the revenue and EBITDA expectations are for phase one and just clarify if those numbers are the consolidated amount? Because I think you have a JV partner and I keep getting questions from from investors where there's some confusion over whether the numbers are yours or you only have maybe 80% of it?

Yeah, so generally when we talk about the facility, when we talk about the CapEx and when we talk about the economic profile, we're talking about 100% of the facility. We are the only contributor to the facility today. So in terms of a JV partner or something that we continue to talk about, but right now we're the only contributor person that's injecting money and owns the outcomes. We previously talked about a revenue range of 100 to 150 million, depending on rare earth prices. So given where the prices are now, I'd suggest it's probably at the lower end of that, 100 to 120 million. But given it's just rare earth prices that change, it actually has no impact on our view of EBITDA. So our EBITDA for that facility we've talked about about being 15 million.

Okay. And when do you think we would see that run rate 15 million?

Probably a little bit more delayed than what folks may have previously kind of targeted. I think it's toward the ending half of the 2020s, primarily because, you know, from my perspective, and I talked about it on the call too, it's important that you have a responsible ramp curve where you're accommodating the risks of launching a new facility in a different jurisdiction so for us I'd like to see a slower and steadier and responsible ramp curve that will not be a comment about demand I think demand will dwarf our our capacity I think in time we will make decisions on how quickly we wish to ramp up to be able to manage an appropriate risk there. But I think 28, 29 is probably not an unreasonable timeframe for one to be thinking about full capacity.

Okay. And between, you know, the startup and 28, 29, is it, like, are you running at an EBITDA loss or do you think even on you know, below 100 million, you can generate positive EBITDA there.

Certainly, probably at half the volume, we would be running positive EBITDA or be close to breakeven. But certainly, 24, 25, and 26 would run at a loss.

Okay. And does that date 28 to 29, are you taking into account the maybe some of the feedback on the qualification process that you'll have to go through. I think these auto OEMs, they want to see the actual magnets coming off the actual lines that they're going to be buying from, and obviously the plant's still under construction, so that's not possible yet. Is that a big factor in the date kind of moving out a little bit?

Absolutely. They do want to see a proper PPAP on actual production equipment in the actual facility, which is why I differentiate kind of our conversations right now with customers are very real and tangible on specific programs with specific launch curves rather than kind of more generic conversations that are not tied to specific ramp curves, specific tolerances, specific specifications. So clearly we'll, you know, the facility will only be ready to PPAP product in the year 2025. So after you PPAP product, then you will start, you know, so we'll PPAP, I would expect that we will PPAP a couple of different products in 2025, but then we'll be running PPAPs in 2026 and 2027, which is me saying, I don't want to actually PPAP, you know, seven or eight discrete programs in one year.

Yeah. Okay. Okay. Given that I think I'm the last on the call, I'll go for another one while I've got you guys. Just in terms of capital allocation, your stock is unfortunately closer to the lows that we've seen since you IPO'd in 2017. You've just printed a great quarter. You don't look to be getting much credit for that dividend. Buybacks look like the most accretive use of capital right now, plus you've got the big capital spend. So how do you think about the dividend here? Is it core to the NEO story, would you say? Or is there some debate about it around the board table every quarter?

Sure. Yuri, I would say all elements of capital allocation are things that get discussed at the board table. All elements on kind of as we talked about the strategic return on assets, this project in European magnets in Estonia, all of those things get significant time and focus from all members of management and all members of the board. I'm not in a position today to signal what our board what might be thinking of in terms of capital allocation decisions regarding the dividends or future buybacks or those types of things. We'll announce changes in that strategy if we have changes in that strategy today, I would merely leave you with, we are very confident. We are very confident in our ability to generate cash and our ability to execute on those programs. So it's kind of also finding a balance of investors getting rewarded for the time in which they're waiting for us to kind of print the larger EBITDA that is coming from those projects. But I also think you're going to see increases in EBITDA and increases in cash flow just in the normal course of the business here over the next couple of years.

Yeah. Okay. Thanks for the time, Rahim. Very good. Thank you, Yuri.

Thank you. At this time, I would like to turn the call back over to our speakers for any closing remarks.

Thank you so much. Again, on behalf of the NEO team, thank you for being on the call today. If you have any questions or follow-ups, please feel free to reach out to myself. That concludes today's call, and we look forward to speaking to you on our second quarter financial results conference call later in the year. Operator, over back to you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.