Neo Performance Materials President and CEO Rahim Suleman speaks at the 2025 U.S.-Canada Summit in Toronto in October, 2025.Sammy Kogan/The Globe and Mail
Casting back to the start of 2025, Neo Performance Materials Inc. NEO-T was our top pick for the year. For those new to the name, Toronto-based Neo Performance refines and manufactures rare earth metals, magnets, and magnetic powders. Here at Contra the Heard Investment Newsletter, our average purchase price is $7.41 since we began buying the stock in January, 2024.
The thesis 18 months ago was simple. Its products are used throughout the economy and are critical to expanding industries, including electric vehicles, energy storage and renewable energies. Not only were the company’s products important, but it pursued many projects to take advantage of these trends.
We also thought Neo Performance could benefit from the geopolitical tensions between China and the West, with China having a stranglehold on rare-earth mining, separating, refining, manufacturing and recycling. Meanwhile, Neo was one of the only organizations at scale outside China with rare earth expertise across the supply chain. This mismatch suggested Neo could benefit from trade tensions or expansion efforts outside of China.
Despite these clear macro drivers, corporate expansion projects and geopolitics, Neo entered 2025 looking like a beaten-up value stock. It had been range-bound for years as senior leadership executed a turnaround, and it was dismissed by the market.
Contra Guys: My top income stock pick for 2026
Since last year, the thesis for investing in Neo has worked out remarkably well. As the U.S.-China trade war deepened, Beijing played its rare-earth trump card and imposed tight export controls. This exposed a critical weakness in the defence architecture of Western democracies, just as NATO military budgets began ramping up. As this national defence vulnerability was exposed, demand for rare earths expanded from electric vehicles, energy storage and renewable energies to include robotics, artificial intelligence data centres, and semiconductors. As a result, the ticker rallied 94.7 per cent in 2025.
Last August, we trimmed the position by roughly 30 per cent at $18.09. This generated a 144.1-per-cent return. We did not, however, sell more, owing to past experiences in which we have sold winners too soon. Neo remains our portfolio’s largest position, we raised our sell target on the rest of the stake after the August, 2025, sale, and the geopolitical and market topography has since shifted so dramatically we may need to increase it again.
As these macro drivers build, the company has rationalized its footprint in China, while ramping up production at its new magnet manufacturing facility in Estonia. The magnet facility – the first of its kind in Europe – was completed on time and on budget, and started production in the fall of 2025. It is on track to hit an annual production rate of 2,000 tonnes, which is enough material to support the production of 1.5 million electric vehicles. Management’s eventual goal is to produce 5,000 tonnes annually.
To cement its vertical integration, the company just commissioned a new heavy rare earth metal separation production line, also in Estonia. This will feed directly into the new magnet manufacturing facility, and secures Europe’s first supply chain from oxides to finished magnets.
Contra Guys: How our picks made out in 2025
Recently, the organization released strong quarterly results that saw the company beat consensus analyst estimates for the top and bottom lines; the executive team boosted the full year forecast as well. Their previous outlook called for annual adjusted-EBITDA between $75-million and $80-million, but that has been juiced to a range between $100-million and $110-million. The 2026 priorities include scaling production at recently completed facilities, pursuing new projects in new regions, and building a foundation to eventually produce 20,000 tonnes annually.
The numbers were great and the guidance is encouraging, but investors should forget the quarter and envision where the enterprise will be in several years. Though the business is no longer a turnaround candidate or a cheap value stock, not much else has changed. The balance sheet is clean, insiders are well-aligned with other owners, and the C-suite has demonstrated an ability to build new facilities on time and on budget.
As for the macro backdrop, if anything, it has strengthened compared to the start of 2025 or when we first bought shares back in 2024. China loosened some export controls in November, but it maintains a stranglehold on the global rare-earth supply chain. Until that changes, China has significant leverage over other nations in trade disputes and military affairs, and in critical industries including renewable energies, energy storage, EVs, robotics, data centres and AI. If other countries want to even the odds, they will have to add their own capacity and lean on Neo Performance Materials to help them build and operate it. China’s monopoly aside, McKinsey predicts that demand for magnetic rare earths will triple by 2035. In other words, the world needs more capacity.
Despite these positives, there are risks. The stock is no longer cheap, and as the ticker’s reaction to the recently announced $100-million common share issuance highlights, there’s a common risk in many momentum stocks: They are prone to sharp and unexpected pullbacks.
Geopolitically, the company’s recently opened facilities are located in Estonia, which is uncomfortably close to Russia. This could be a problem if NATO’s implied deterrence is undercut by indecisive leadership. The Baltic states have capable militaries and are well aware of the Russian threat, but they do not have the heft to deter Russia on their own.
As for economics, the demand projections may not live up to expectations. Moreover, China may flood the market in an attempt to maintain supply chain control. To counter this possibility, various countries have discussed commodity price floors while some governments and departments have signed long-term contracts with corporate partners at levels above prevailing market prices. Though price floors represent a good countermeasure, the potential size of a Chinese supply flood could make price floors expensive or untenable.
Risks and all, Neo Performance is our largest holding, our price target is likely going up, and the rewards appear to outweigh the risks.
Philip MacKellar is the General Manager at Contra the Heard Investment Newsletter.