Meet The Texas Startup That Recycles Rare-Earth Magnets, Bypassing China

At a factory in San Marcos, Texas, workers gather Bird scooters, computer hard drives, MRI machines and motors from hybrid cars in order to separate out the old rare-earth magnets so they can be ground down and shaped into new ones. These strong permanent magnets are everywhere, even if most people know nothing about them. They go into everything from electric vehicles to wind turbines to consumer electronics to missile guidance systems. Yet for years, the U.S. has been largely dependent on China for rare-earth processing. Noveon Magnetics, the startup behind this recycling effort, has a grand plan — and some patented technology — to make a dent in that dependance.

“We didn’t realize till the last decade how big the potential shortfalls were,” says Scott Dunn, Noveon’s cofounder and chief executive. “You don’t just get to turn on the spigot and produce these. They’re not a commodity.”

Magnets go into motors and generators that enable electricity to be transformed into motion and motion into electricity. Permanent magnets, made with rare earth materials, are a key element of the country’s efforts to decarbonize with electric vehicles and wind turbines. Because of their higher performance — allowing smaller, more powerful motors than alternatives — their use has spread and continues to rise. Global demand for rare-earth magnets will increase at 7.5% compounded annually through 2040, according to Adamas Intelligence.

Noveon, founded nearly a decade ago and currently expecting just $10 million in revenue this year, is a drop in the bucket for now. As with any precision manufacturing process, it has to run customers’ magnets through a battery of tests to qualify their use before scaling up. But with $150 million in equity funding — including a new $75 million investment led by energy investor NGP that has not been previously reported — at a valuation of approximately $300 million, it has set up its factory and is ready to crank up its output.

“We would need to build four or five factories to meet the demand of our customers.”

Scott Dunn, Noveon cofounder and CEO

Dunn figures that once its San Marcos facility is at capacity, by 2024 or 2025, it will be able to churn out 2,000 tons of magnets under long-term supplier agreements, using a mix of recycled and mined rare-earth materials, and bringing in revenue of $250 million with 40% Ebitda at current magnet prices. After that, he hopes to set up similar magnet factories in Europe and Asia (outside of China), with a goal of reaching $1 billion in revenue within five years.

Scaling up an operation like this is extremely capital-intensive. Rare-earth prices have been volatile long term. And a key ingredient will be keeping the supply chains for the recycled materials running smoothly. But Dunn says that demand is so high that Noveon can’t even begin to meet its existing customers’ needs from its San Marcos factory. “We would have to build four or five factories to meet the demand of our customers,” he says.

Noveon isn’t the only company building a magnet factory in the U.S. to meet demand for domestically manufactured magnets as an alternative to China. MP Materials, a publicly traded $4 billion (market cap) firm that owns a major rare-earth mining and processing facility at Mountain Pass, California is currently building a magnet factory in Fort Worth, Texas with a capacity of 1,000 tons of finished magnets and a long-term agreement to supply General Motors. Two other U.S.-headquartered firms, Quadrant Magnetics and USA Rare Earth, as well as the German company Vacuumschmelze, have plans to establish U.S. magnet manufacturing facilities by 2026.

“If we can develop new processing, that is the key leverage point in getting our critical minerals supply re- or near-shored efficiently,” says Aidan Madigan-Curtis, a partner at the venture firm Eclipse, which has no relationship to Noveon.

For Noveon, it hasn’t been easy. Dunn and cofounders Peter Afiuny, Miha Zakotnik and Catalina Oana Tudor have spent years refining and patenting the technology and figuring out how to scale it up, helped by funding from the Department of Defense as well as money from private investors.

Typically, recycling permanent magnets results in decreased performance, but Dunn says that’s not the case with Noveon’s proprietary technology. Early customers include Nidec Motor, a large manufacturer of motors that’s part of Japan’s publicly traded ($30 billion market cap) Nidec Corp., and Eriez, a privately held manufacturer of industrial equipment — plus a number of customers that Dunn declines to name on the record.

Getting rare earth magnets, after all, is a big issue for the companies that need them, and with China reportedly considering prohibiting exports of certain rare-earth magnet technology following Washington’s restrictions on semiconductors, having homegrown supply is a big competitive advantage. “Permanent magnets are to motors what lithium is to batteries,” says Kirk Anderson, Nidec Motor’s director of government affairs. “These magnets, and critical minerals in general, are key to achieving the decarbonization goals the Administration is talking about.”


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