22 December 2024

Howe Street Reporter Title

Niocorp (NB.T) gets massive vote of confidence with Stellantis (STLA) offtake deal


Stellantis NV (STLA.NYSE), one of the world’s largest automotive conglomerates, and Niocorp Developments Ltd. (NB.T), an emerging rare earth metals explorer, have decided to team up and signed a preliminary term sheet’ with the goal bring to finalize a supply agreement which will support Stellantis’s ambition to reduce its carbon footprint to zero by 2038.

The deal is also designed to help Niocorp kickstart its production of magnetic rare earth oxides, which are essential materials for electric vehicles, smack dab in the United States.

According to the agreement inked today, both companies plan to lock down a 10-year deal for specific quantities of rare earth oxides, namely neodymium-praseodymium oxide, dysprosium oxide, and terbium oxide. Niocorp aims to extract these oxides from its Elk Creek project in southeast Nebraska, but this is contingent on the project securing sufficient funding. The exact quantities of these materials will be specified in a detailed agreement in the future.

For Niocorp, this deal is a massive sign of faith by the car company. Generally speaking, lithium explorers have long hoped for Tesla to let them announce a similar deal, and on the mere sniff that it might happen, market caps have been known to rocket. It’s a rare thing for an explorer to have an auto giant permit them to utilize their name in print, so this deal is not only promising in terms of ensuring Niocorp will one day have a ready made buyer for their product, but also a big nod of respect in management that Stellantis trusts Niocorp enough to be publicly associated with them going forward.

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In short, this is a big deal.

Stellantis’s chief purchasing and supply chain officer, Maxime Picat, emphasized the company’s commitment to leading the industry by becoming carbon neutral by 2038. Achieving this goal, Picat explained, will necessitate innovation and a total revamp of their sourcing strategies. Partnerships with companies like Niocorp, he said, are crucial to reducing carbon emissions from their operations and ensuring a steady supply of necessary raw materials for their global electrification plans. On the other hand, Niocorp’s CEO, Mark Smith, expressed his excitement about the agreement, noting that it could help Stellantis identify a permanent magnet manufacturer offering geographic flexibility, thereby supporting Stellantis’s bold environmental commitment.

However, there’s a bit of a reality check here: this whole agreement hinges on whether Niocorp’s Elk Creek project is economically viable. In other words, they need to figure out whether extracting these rare earth elements makes financial sense after considering all relevant factors. Finally, entering into a binding agreement depends on successful due diligence, negotiation of final terms, drafting of official documents, and standard closing conditions, including getting the green light from regulators. At this point, there’s no guarantee that a final agreement will be reached on these terms, or even at all, but the other side of that is, most companies never get anywhere near this first legitimizing step with a genuine global giant.

Niocorp had been hoping that a long awaited merger with a SPAC was going to bring it the capital it needed to move forward towards production, only for the market in SPACs to fall off a cliff as it was closing. Now, the company finds itself working with debt financiers and progressing the property so as to make future financing easier.

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That said, the property is a stone cold killer, and if Niocorp can continue its slow roll forward as it has so far, I’d expect the end of this year to become very interesting for NB.

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