GM exit clouds Energy Fuels’ $1.9B magnet deal

General Motors (NYSE: GM) has cancelled a supply agreement with a U.S. rare-earth magnet plant whose owner Energy Fuels (TSX: EFR; NYSE-A: UUUU) has agreed to buy for US$1.9 billion (C$2.7 billion), exposing a customer dispute that could change the acquisition price.

GM was expected to buy 90% of output from the US$500-million South Carolina plant operated by e-VAC Magnetics, a unit of Germany’s Vacuumschmelze, or VAC, Reuters reported late last week. The supplier is challenging the termination in arbitration.

Energy Fuels knew about the dispute while negotiating the takeover and included a possible purchase-price adjustment, the company said in an Oct. 13 filing. Though the filing does not identify the customer, Reuters identified it as GM.

“We have no concerns about VAC’s commercial prospects, manufacturing capabilities and ability to meet customer specifications,” an Energy Fuels spokesperson said Monday in an e-mail to The Northern Miner. Energy Fuels won’t be commenting on the customer dispute while the matter remains in arbitration, the spokesperson added.

The dispute puts customer demand at the centre of Energy Fuels’ effort to build a supply chain stretching from rare-earth mining and processing to finished magnets. The company presented its June acquisition agreement as a way to connect its growing minerals business with established magnet customers in North America and Europe.

Uncertain outcome

The disagreement began in April, before Energy Fuels signed the takeover agreement. The customer gave notice of termination July 1, and VAC began arbitration July 7, seeking to have the cancellation declared wrongful and recover payments due over the remaining contract, according to the filing. The outcome remains uncertain.

VAC’s Sumter plant could take on new customers if the existing agreement does not remain in place, Energy Fuels says. However, their technical requirements could require significant additional capital spending. The Oct. 13 amendment provides for potential acquisition-price adjustments tied to the dispute and repayment of certain debt.

The acquisition remains subject to closing conditions. Energy Fuels still expects the deal to close in 2027, the spokesperson said.

VAC’s Sumter plant has annual capacity of 2,000 tonnes of permanent magnets. Energy Fuels agreed to buy the broader VAC business from private equity firm Ara Partners, with announced consideration including US$718 million in cash and about 65.9 million shares. VAC has more than 1,000 customers, Energy Fuels said in June.

Energy Fuels shares rose 1% to C$10.66 Monday afternoon in Toronto, valuing the company at about C$2.8 billion ($2 billion). The stovck has traded between C$10.23 and C$37.85 in the past year.