Toronto-based Neo Performance Materials is tightening one of the hardest links in Europe’s emerging rare-earth supply chain just as its new magnet operation moves toward commercial production. The company has signed a binding term sheet with French rare-earth specialist Carester that is designed to give Neo access to separated dysprosium and terbium oxides from the Caremag facility being built in Lacq, France.
The arrangement reaches beyond a simple purchase contract. Neo will also send magnet-manufacturing scrap to Carester for recycling and process some of Carester’s mixed rare-earth feedstock at its Silmet separation plant in Estonia. Together, the steps create a more circular European chain connecting French heavy rare-earth separation, Estonian refining and Neo’s new sintered-magnet plant in Narva. For Europe, the significance is less about one shipment than about building industrial capacity outside a supply chain still overwhelmingly concentrated in China.
Neo’s Deal Targets a Critical Bottleneck
Neo announced the partnership with Carester on August 31, 2026, describing it as a multi-year arrangement built around a binding term sheet. Under the proposed commercial structure, Neo is expected to receive separated dysprosium and terbium oxides from Carester’s Caremag plant for use in its European sintered-magnet operation. Neither company disclosed contracted volumes or pricing, an important limitation when assessing how much of Neo’s eventual heavy rare-earth demand the agreement could cover.
The deal is also broader than a conventional offtake. Carester is set to gain access to recyclable magnet swarf from Neo as well as processing capacity at Neo’s Silmet facility in Estonia. Neo’s disclosure says definitive agreements still need to be negotiated and executed, so the framework should not be treated as fully implemented today. Even so, it gives the companies a defined route for linking feedstock, separation, recycling and magnet production across two European Union countries as both operations move toward larger-scale production.
Dysprosium and Terbium Matter Because Heat Changes the Equation
The heavy rare earths at the centre of the deal are used in small quantities but can have an outsized effect on high-performance neodymium-iron-boron magnets. Dysprosium and terbium are commonly introduced into sintered NdFeB magnets to strengthen coercivity, the resistance to demagnetization, particularly when motors operate at elevated temperatures. Recent materials research continues to focus on using these elements more efficiently because they are expensive, scarce and strategically sensitive.
That technical role matters in applications such as electric-vehicle traction motors, industrial drives and some wind-power systems, where magnets can face demanding thermal and mechanical conditions. A 2026 review in the Journal of Alloys and Compounds highlighted heavy-rare-earth grain-boundary diffusion as an established way to improve coercivity while limiting the loss of remanence. The practical implication for Neo is straightforward: securing Dy and Tb is not simply about adding more raw material. It is about preserving access to performance grades that many advanced motor customers require.
Caremag Is Being Built at Meaningful European Scale
Carester’s Caremag project in Lacq is designed as both a recycling operation and a rare-earth separation plant. The company secured €216 million in financing for the project in 2025, including €110 million from Japanese partners and €106 million in support from the French government. Carester says the facility is expected to process 2,000 tonnes of magnets and 5,000 tonnes of mining concentrates each year once fully operating.
Its planned output is especially notable on the heavy-rare-earth side. Carester has said Caremag could produce about 600 tonnes a year of dysprosium and terbium oxides combined, roughly 15% of current global production by its estimate, alongside about 800 tonnes of neodymium-praseodymium oxides. More recent project disclosures point to commissioning in late 2026. For Neo, that timing is closely aligned with the ramp-up of its own European magnet business, although start-up schedules for new chemical-processing plants can still shift as commissioning progresses.
Neo’s Narva Magnet Plant Is Moving From Qualification to Sales
The supply agreement arrives as Neo’s permanent-magnet facility in Narva, Estonia, approaches a commercial inflection point. In its August 2026 results, Neo said the plant was producing and shipping qualification magnets for multiple awarded automotive programs and remained on track for two to three customer programs to enter commercial production during 2026. The first phase has nameplate capacity of roughly 2,000 tonnes of magnets per year.
Neo is already preparing for a larger footprint. The company has begun advanced equipment purchases for a Phase 1B expansion intended to lift annual nameplate capacity to about 5,000 tonnes. The project previously received €18.75 million from the European Union’s Just Transition Fund, reflecting its role in reshaping the industrial base of Estonia’s Ida-Viru region. For customers, the attraction is not merely that the magnets are made in Europe. The larger promise is a supply chain in which more of the refining, recycling and manufacturing steps are also located there.
Factory Scrap Becomes Feedstock Instead of a Dead End
One of the more practical parts of the Neo-Carester arrangement concerns magnet swarf, the fine scrap generated during sintered-magnet manufacturing and machining. Neo plans to send this material to Carester for recycling. In return, Neo would receive recovered neodymium-praseodymium, dysprosium and terbium oxides, putting valuable material back into its own production chain rather than relying entirely on fresh primary feedstock.
That circular approach is strategically useful because rare-earth magnets contain concentrated material that has already passed through energy- and capital-intensive mining and separation stages. Caremag is being designed to recycle end-of-life magnets as well as industrial material, with a stated capacity of 2,000 tonnes of magnets annually. The European Union’s Critical Raw Materials Act sets a 2030 benchmark for at least 25% of annual consumption of strategic raw materials to come from EU recycling capacity. Neo’s scrap loop alone will not meet that target, but it illustrates the type of closed-loop industrial system the policy is trying to encourage.
Silmet Gives the Partnership a Second Processing Anchor
The partnership also uses Neo’s existing Silmet operation in Sillamäe, Estonia, rather than relying only on new construction. Under the planned tolling arrangement, Neo will process mixed rare-earth carbonate supplied by Carester. Neo is expected to retain the light rare-earth output while returning the separated heavy-rare-earth portion to Carester. The structure effectively lets each company use the other’s strongest processing capabilities.
Silmet already provides Neo with a rare European position in commercial rare-earth separation. In April 2026, Neo said it had commissioned a small-scale heavy-rare-earth solvent-extraction line there and had produced separated terbium and dysprosium process solutions from mixed rare-earth carbonate feedstock, with the processing completed entirely in Europe. That line is not a substitute for Caremag’s proposed industrial-scale heavy-rare-earth output. Instead, it gives Neo operating experience in the chemistry and creates another link between upstream feedstock and the Narva magnet plant as the company works toward a more integrated regional system.
The Strategy Fits Europe’s Critical-Materials Rulebook
Europe has spent several years trying to reduce its dependence on concentrated overseas sources of strategic minerals, and the Neo-Carester partnership lands squarely inside that policy push. The EU Critical Raw Materials Act sets 2030 benchmarks covering at least 10% of annual consumption from EU extraction, 40% from EU processing and 25% from EU recycling. It also says no more than 65% of the EU’s annual needs for each strategic raw material at a relevant processing stage should come from a single third country.
Rare-earth magnets are exactly the kind of technology those rules are meant to protect because they sit inside electric vehicles, wind turbines, industrial machinery, electronics and defence-related systems. Neo’s projects have already benefited from public support: the European Commission has identified its Narva magnet facility as a Just Transition Fund investment. Caremag, meanwhile, is being developed with substantial French state backing. The emerging model is therefore commercial but policy-assisted, with governments helping absorb part of the cost of rebuilding industrial capabilities that largely migrated to Asia.
China’s Dominance Makes Diversification More Than a Slogan
The urgency behind European rare-earth investment becomes clearer when the global numbers are considered. The International Energy Agency says China accounted for about 60% of mined magnet rare earths in 2024, roughly 91% of refined production and about 94% of sintered permanent-magnet manufacturing. Few other critical-mineral supply chains are concentrated so heavily in one country across extraction, refining and final component production.
Recent trade restrictions have shown how quickly that concentration can become an industrial problem. The IEA reported that Chinese export controls introduced in 2025 caused short-term disruptions for manufacturers outside China, including difficulty securing some magnet-related inputs and production reductions in certain cases. Its 2026 work continues to warn that diversification remains incomplete. Against that backdrop, Neo’s agreement is strategically important even if its undisclosed volumes are modest: every commercially viable source of separated dysprosium and terbium outside China gives European manufacturers another option when geopolitical or licensing conditions tighten.
Neo Is Funding Expansion From a Stronger Financial Position
Neo is entering this build-out during a period of unusually strong earnings for the company. In the second quarter of 2026, it reported revenue of about US$205.7 million and adjusted EBITDA of US$57 million, the highest quarterly adjusted EBITDA in its history. The company also raised its full-year 2026 adjusted EBITDA guidance to US$140 million to US$150 million and said it expected results toward the high end of that range.
Capital is being directed toward the magnet platform as well. Neo completed a C$115.1-million equity offering in May 2026, with a significant portion of the proceeds earmarked for magnetics expansion, including long-lead equipment for the proposed Narva Phase 1B build-out. Strong earnings do not remove the execution risks associated with commissioning plants, qualifying automotive products or securing feedstock. They do, however, give Neo more financial flexibility at a moment when Europe’s rare-earth supply chain is requiring simultaneous investment in processing, recycling and manufacturing.
The Next Test Is Execution Across Three Facilities
The strategic logic is clear, but the industrial proof will come from execution. Neo needs its Narva plant to convert qualification work into repeat commercial production, Carester needs Caremag to complete commissioning and ramp output, and the companies still need to translate the binding term sheet into definitive operating agreements. Those steps involve different technical and commercial risks, from chemical-process stability to customer qualification and the availability of suitable feedstock.
If the pieces work together, the result would be a notable European loop: mixed rare-earth material processed through Silmet, heavy rare-earth oxides supplied from France, manufacturing scrap recycled through Caremag and finished sintered magnets produced in Estonia. That is much closer to a regional supply chain than simply importing separated oxides and assembling components locally. The agreement therefore matters less because it eliminates Europe’s dependence on China—it does not—and more because it adds another functioning link to a network that Europe is trying to build before the next supply shock forces the issue.
