In its third major deal of the year Molycorp announced a proposed US$1.3 billion acquisition of Toronto-based rare earth processor Neo Materials Technologies.

Molycorp, the largest rare earth resource company in the West, said the deal would give it “greater exposure to the world’s largest and fastest-growing rare earth consuming nation, China, which now comprises about 70 percent of global rare earth consumption.”

With the deal, Molycorp, owner of the Mountain Pass rare earth mine in California, will have operating facilities in Asia, Europe and North America.

Neo Material Technologies is a producer, processor and developer of neodymium-iron-boron magnetic powders, rare earths and zirconium-based engineered materials and applications, and other rare metals and their compounds through its Magnequench and Performance Materials business divisions. Magnequench’s Neo Powders are used to produce bonded magnets used in micro motors, precision motors, sensors and other applications requiring high levels of magnetic strength, flexibility, small size and reduced weight.

Along with Rhodia of France, a big chemical company that was bought last summer by Solvay of Belgium for $4.8 billion, Neo Material is one of the two largest companies to process rare earths.

Neo Material and Rhodia currently buy most of their feedstock from China. But Neo Material has been working with Molycorp and Rhodia has been working with Lynas to develop alternatives.

“Their issue has always been, Where do we get the feedstock?” Mark A. Smith, the chief executive of Molycorp, told The New York Times. He added that for his own company, the question has been, “How do we achieve those levels of purity?”

Molycorp is offering a consideration of C$11.30 per Neo Materials share. Neo Materials shareholders can elect either cash or Molycorp shares, subject to pro-ration.

The transaction will leave Molycorp shareholders with 75 percent of the combined company, Molymet shareholders with 11 percent and Neo Materials shareholders with 14 percent.

In a statement,. Smith said, “Neo Materials is recognized throughout the industry for its exceptionally high-quality production and processing capabilities, its patented technology platform, and its ability to consistently meet demand customer specifications.”

The combination of Molycorp and Neo Materials will expand Molycorp’s technology portfolio to include production of magnetic powders and rare metals including gallium, indium and rhenium, as well as zirconium oxide. It also provides Molycorp with entry into customer segments requiring value added, rare earth and rare metal production capabilities with up to 99.99999 percent purity for some elements.

“The industrial logic of this combination is highly compelling,” said Constantine Karayannopoulos, Neo Materials CEO. “We will be vertically integrating the world’s best rare earth resource outside of China with the world’s best rare earth processing technology company.

“The new enterprise will have the broadest global coverage in the industry, as well as a strategic position in high-value magnetic materials and rare and other strategic metals,” he added.

Molycorp’s Smith told Reuters the deal will bring together Molycorp's massive production capacity at the Mountain Pass mine in California and Neo’s advanced rare earth processing capabilities, which will form “the best full supply chain capability known in the industry.”